Overstock.com 2012 Annual Report Download - page 45

Table of Contents
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We operate an online car listing service as part of our Website. The car listing service allows sellers to list vehicles for sale and allows buyers to
review vehicle descriptions and post offers to purchase, and provides the means for prospective purchasers to contact sellers for further information and
negotiations on the purchase of an advertised vehicle. We also earn advertisement revenue derived from our cars business. Revenue from the cars
businesses is included in the fulfillment partner segment on a net basis. Revenue from our other businesses is less than 1% of total net revenues.
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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 15 of Part IV, "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.
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We derive our revenue primarily from direct revenue and fulfillment partner revenue from merchandise sales. We also earn revenue from
advertising on our shopping and other pages, and previously from listing fees and commissions collected from products being listed and sold through
the Auctions tab, which we removed from our site in July 2011. We have organized our operations into two principal segments based on the primary
source of revenue: direct revenue and fulfillment partner revenue.
Revenue is recognized when the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or the service has been provided; (3) the selling price or fee revenue earned is fixed or determinable; and (4) collection of the resulting
receivable is reasonably assured. Revenue related to merchandise sales is recognized upon delivery to our customers. As we ship high volumes of
packages through multiple carriers, it is not practical for us to track the actual delivery date of each shipment. Therefore, we use estimates to determine
which shipments are delivered and, therefore, recognized as revenue at the end of the period. Our delivery date estimates are based on average shipping
transit times, which are calculated using the following
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