Overstock.com 2012 Annual Report Download - page 101

Table of Contents
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made on our Website. We also have a co-branded credit card program (see "Co-branded credit card revenue" below for more information). Co-branded
cardholders are also Club O members and earn additional reward dollars for purchases made on our Website, and from other merchants. Reward dollars
earned may be redeemed on future purchases made through our Website. Club O reward dollars expire 90 days after the customer's Club O membership
expires. We account for these transactions as multiple element arrangements and allocate revenue to the elements using their relative fair values. We
include the value of reward dollars earned in deferred revenue and we record it as a reduction of revenue at the time the reward dollars are earned.
We recognize revenue for Club O reward dollars when customers redeem their reward dollars as part of a purchase at our Website. We recognize
other income when Club O reward dollars expire or the likelihood of reward dollars being redeemed by a customer is remote ("reward dollar
breakage"). Due to the program's short history, currently no reward dollar breakage is recognized until the reward dollars expire. However, in the future
we plan to recognize such breakage based upon historical redemption patterns.
In instances where customers receive free Club O reward dollars not associated with any purchases, we account for these transactions as sales
incentives such as coupons and record a reduction of revenue at the time the reward dollars are redeemed.
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We have entered into a co-branded credit card agreement with a commercial bank for the issuance of credit cards bearing the Overstock.com brand,
under which the bank pays us fees for new accounts and for customer usage of the cards. The agreement also provides for a customer loyalty program
offering reward points that customers will accrue from card usage and can use to make purchases on our Website (See "Club O loyalty program" above
for more information). New account fees are recognized as revenue on a straight-line basis over the estimated life of the credit card relationship. Credit
card usage fees are recognized as revenues as actual credit card usage occurs.
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Customer orders are recorded as deferred revenue prior to delivery of products or services ordered. We record amounts received for Club O
membership fees as deferred revenue and we recognize it ratably over the membership period. We record Club O reward dollars earned from purchases
as deferred revenue at the time they are earned and we recognize it as revenue upon redemption. If reward dollars are not redeemed, we recognize other
income upon expiration. In addition, we sell gift cards and record related deferred revenue at the time of the sale. We sell gift cards without expiration
dates and we recognize revenue from a gift card upon redemption of the gift card. If a gift card is not redeemed, we recognize other income when the
likelihood of its redemption becomes remote based on our historical redemption experience. We consider the likelihood of redemption to be remote after
36 months.
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We inspect 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.
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