Overstock.com 2012 Annual Report Download - page 48

Table of Contents
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We have 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.
If the return is not a result of a product defect or a fulfillment error and the customer initiates a return of an unopened item within 30 days of
delivery, for most products we refund the full cost of the merchandise minus the original shipping charge and actual 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
actual 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 at
December 31, 2011 and 2010. The allowance for returns was $10.6 million and $10.9 million at December 31, 2012 and 2011, respectively.
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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 $182,000 and $187,000 at December 31, 2012 and 2011,
respectively.
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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
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