Overstock.com 2011 Annual Report Download - page 57

Table of Contents
During the three months ended December 31, 2009, we had a change in estimate for our sales returns allowance that reduced the allowance by
approximately $3.0 million from the prior quarter-end balance and $3.2 million from the prior year-end balance that was recorded in accordance with
ASC 250 "Accounting Changes and Error Corrections" on a prospective basis. The change in estimate for our sales returns allowance had the following
impact on our financial results for the three and twelve months ended December 31, 2009 (amounts in thousands, except per share data):
Three months
ended
December 31,
2009
Twelve months
ended
December 31,
2009
($ Change) ($ Change)
Revenue, net $ 2,995 $ 3,208
Gross profit 752 805
Income from continuing operations before income taxes 752 805
Net income 752 805
Net income attributable to common shares—basic $ 0.04 $ 0.04
Net income attributable to common shares—diluted $ 0.04 $ 0.03
The reasons for the change in estimate in the fourth quarter of 2009 were as follows. We made improvements to our information systems during 2008
and 2009 that enabled enhanced reporting and analysis of our returns data used in the estimation process. In early 2009, we implemented initiatives to reduce
overall return rates in several of our product categories. In September 2009, we entered into a new master supplier agreement with our fulfillment partners that
provided financial incentives for suppliers to reduce returns. These initiatives resulted in a sustained decrease in our product return trends resulting in the
change in estimate of sales returns allowance during the three months ended December 31, 2009.
Although we believe that our estimates, assumptions, and judgments are reasonable, actual results have historically differed from our estimates. Based on
our actual returns experience through December 31, 2011, had our estimated returns equaled our actual returns, our net loss would have decreased
approximately $1.5 million for the year ended December 31, 2007, our net loss would have increased approximately $725,000 for the year ended
December 31, 2008, and our net income would have decreased approximately $805,000 for the year ended December 31, 2009. Based on the improvements
and initiatives discussed above, we believe that our estimates, assumptions and judgments have improved and our actual product returns have not differed
materially from our estimates at December 31, 2010 and during 2011.
The allowance for returns was $10.9 million and $11.5 million at December 31, 2011 and 2010, 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 $187,000 and $125,000 at December 31, 2011 and 2010, respectively.
Allowance for doubtful accounts
From time to time, we grant credit to certain of our business customers on normal credit terms (typically 30 days). We perform credit evaluations of our
business customers' financial condition and payment history and maintain an allowance for doubtful accounts receivable based upon our historical collection
experience and expected collectability of accounts receivable. The allowance for doubtful accounts receivable was $574,000 and $2.0 million at December 31,
2011 and December 31, 2010, respectively. The decrease in the allowance for doubtful accounts was primarily due to write-offs of
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