Overstock.com 2013 Annual Report Download - page 79

Table of Contents
delivery destination; and (iv) actual transit time experience, which shows that delivery date is typically one to eight business days from the date of shipment.
We review and update our estimates on a quarterly basis based on our actual transit time experience. However, actual shipping times may differ from our
estimates.
We evaluate the criteria outlined in ASC Topic 605-45, , in determining whether it is appropriate to record the gross
amount of product sales and related costs or the net amount earned as commissions. When we are the primary obligor in a transaction, are subject to inventory
risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded gross. If we are not the
primary obligor in the transaction and amounts earned are determined using a fixed percentage, revenue is recorded on a net basis. Currently, the majority of
both direct revenue and fulfillment partner revenue is recorded on a gross basis, as we are the primary obligor. We present revenue net of sales taxes.
We periodically provide incentive offers to our customers to encourage purchases. Such offers include current discount offers, such as percentage
discounts off current purchases and other similar offers, which, when used by customers, are treated as a reduction of revenue.
Based upon our historical experience, revenue typically increases during the fourth quarter because of the holiday retail season.

Direct revenue is derived from merchandise sales to individual consumers and businesses that are fulfilled from our warehouses. Direct revenue
comes from merchandise sales that occur primarily through our Website, but may also occur through offline and other channels.

Fulfillment partner revenue is derived from merchandise sales which fulfillment partners ship directly to consumers and businesses from
warehouses maintained by our fulfillment partners. Fulfillment partner revenue comes from merchandise sales that occur primarily through our Website, but
may also occur through offline and other channels.

We have a customer loyalty program called Club O for which we sell annual memberships. We record membership fees as deferred revenue and we
recognize revenue ratably over the membership period. The Club O loyalty program allows members to earn reward dollars for qualifying purchases 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”). Reward
dollar breakage is currently recognized when the reward dollars expire.
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.

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
77