Overstock.com 2014 Annual Report Download - page 39

Table of Contents
The following table shows the effect that hypothetical changes in the estimate of average shipping transit times would have had on the reported
amount of revenue and income before taxes for the year ended December 31, 2014 (in thousands):







2
$ (8,418)
$ (1,077)
1
$ (2,668)
$ (348)
As reported
As reported
As reported
(1)
$ 3,348
$ 424
(2)
$ 13,652
$ 1,736
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 partner revenue is recorded on a gross basis, as we
are the primary obligor. In our statements of operations, 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 our customers, are treated as a reduction of revenue.

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 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.
The allowance for returns was $15.5 million and $13.2 million at December 31, 2014 and 2013, respectively.

Inventories, consisting of merchandise purchased for resale, are accounted for using a standard costing system which approximates the first-in-first-
out (“FIFO”) method of accounting, and are valued at the lower of cost or market. We write down our inventory for estimated obsolescence and to the lower of
cost or market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required. Once established, the original cost of the inventory less the related inventory allowance
represents the new cost basis of such products. Reversal of the allowance is recognized only when the related inventory has been sold or scrapped.

Included in fixed assets is the capitalized cost of internal-use software and website development, including software used to upgrade and enhance
our Website and processes supporting our business. We capitalize costs incurred during the
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