Overstock.com 2014 Annual Report Download - page 89

Table of Contents
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 of our owned inventory to individual consumers and businesses. Direct revenue comes from
merchandise sales that occur primarily through our Website, but may also occur through offline and other channels.

Partner revenue is derived from merchandise sales of inventory owned by our partners which they generally ship directly to our consumers and
businesses. 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 ("standard Club O"). During the third quarter of 2014, we
also introduced an introductory customer loyalty program called Club O Lite for customers who sign up to receive promotional emails. For standard Club O
memberships, we record membership fees as deferred revenue and we recognize revenue ratably over the membership period. Both the standard Club O and
Club O Lite loyalty programs allow members to earn reward dollars for qualifying purchases made on our Website. We also have a co-branded credit card
program (see  below for more information). Co-branded cardholders are also standard Club O members and earn additional
reward dollars for purchases made on our Website, and from other merchants.
Club O Reward dollars earned may be redeemed on future purchases made through our Website. Standard Club O membership reward dollars expire
90 days after the customer’s Club O membership expires. Club O Lite reward dollars expire 90 days after they are earned if no additional qualifying purchases
are made during that period.
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 as Other income in our consolidated statements of income. Because we recently
introduced Club O Lite, and enrolled a significant number of Club O Lite members, reward dollars and resulting breakage may increase as compared to prior
periods.
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  above for more information).
New account fees are recognized as revenue on a straight-line basis over the remaining life of the credit card relationship which runs through April 2015.
Credit card usage fees are recognized as revenues as actual credit card usage occurs.
88