Overstock.com 2014 Annual Report Download - page 38

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Table of Contents
• Farmers Market, a tab within our Website where our customers can order locally grown fresh produce and other food products;
• Insurance, a tab within our Website where our customers can shop for insurance from major carriers for both personal and business insurance
policies; and
• an online car listing service which 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.

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 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.

We derive our revenue primarily from direct revenue and partner revenue from merchandise sales. We also earn revenue from advertising on our
shopping and other pages. We have organized our operations into two principal segments based on the primary source of revenue: direct revenue and partner
revenue (see Note 21. Business Segments).
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 factors: (i) the type of shipping carrier (as carriers have different in-transit times); (ii) the fulfillment source (either our
warehouses or those of our partners); (iii) the 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.
Based upon our historical experience, revenue typically increases during the fourth quarter because of the holiday retail season.
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