Overstock.com 2010 Annual Report Download - page 52

Table of Contents
negotiations on the purchase of an advertised vehicle. The real-estate listing service allows customers to search active listings across the country. Listing
categories include foreclosures, live and on-line auctions, for sale by owner listings, broker/agent listings and numerous aggregated classified ad listings. We
also earn advertisement revenue derived from our cars and real estate listing businesses. Revenue from the auctions, cars and real estate businesses is included
in the fulfillment partner segment on a net basis.
In October 2009, we introduced O.biz, a website where customers and businesses can shop for bulk and business related items, offering manufacturers,
distributors and other retailers an alternative sales channel for liquidating their inventory, and in August 2010, we introduced Eziba.com, a private sale
website where members can shop exclusive deals on the latest home décor products, jewelry, apparel and accessories from many leading brands. Revenue
generated from our O.biz and Eziba.com websites is included in either direct or fulfillment partner revenue, depending on whether the product is shipped from
our warehouses or from a fulfillment partner.
Generally, we require verification of receipt of payment, or authorization from credit card or other payment vendors whose services we offer to our
customers (such as PayPal and BillMeLater), before we ship products to consumers or business purchasers. From time to time we grant credit to our business
purchasers with normal credit terms (typically 30 days). For most sales in our fulfillment partner business, we generally receive payments from our customers
before our payments to our suppliers are due.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires estimates and assumptions
that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated
financial statements and accompanying notes. The Securities and Exchange Commission ("SEC") has defined a company's critical accounting policies as the
ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most
difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have
identified the critical accounting policies, estimates and judgments addressed below. We also have other key accounting policies, which involve the use of
estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see Item 1 of Part I, "Financial
Statements"—Note 2—"Accounting Policies." Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon
information presently available. Actual results may differ significantly from these estimates. Our critical accounting policies are as follows:
revenue recognition;
estimating valuation allowances and accrued liabilities (specifically, the allowances for returns, credit card chargebacks, doubtful accounts and
obsolete and damaged inventory);
internal use software and website development (acquired and developed internally);
accounting for income taxes;
valuation of long-lived and intangible assets and goodwill; and
loss contingencies.
Revenue recognition
We derive our revenue primarily from two sources: direct revenue and fulfillment partner revenue, including listing fees and commissions collected from
products being listed and sold through the
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