Overstock.com 2014 Annual Report Download - page 90

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Table of Contents
We also have a private label credit card agreement with another commercial bank for the issuance of credit cards bearing our brand, but that is only
available for use on our Website. In connection with the agreement, we received upfront fees that we recognize as revenue on a straight line basis over the
term of the agreement, which runs through February 2022. When customers make regular revolving purchases using the card, we receive fees, which are
recognized as revenue. When we offer promotional financing for purchases made with the card (for example, 12 months same as cash), we pay a discount fee
to the commercial bank, which we recognize as a reduction of revenue. The commercial bank owns all of the accounts under the program and performs all
account administration, underwriting and servicing. Fees and royalties from new accounts, credit card usage fees, and fees from both of these cards were less
than 1% of total net revenues for all periods presented.

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.
We periodically enter into agreements with other parties to jointly market ancillary products or services on our website. As a result of those
agreements, we sometimes receive payments in advance of performing our obligations under those agreements. Such payments received before we perform
our obligations are recognized over our service period.

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.

Revenue is recorded net of 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 $129,000 and $94,000 at December 31, 2014 and 2013, respectively.

Cost of goods sold includes product costs, warehousing costs, outbound shipping costs, handling and fulfillment costs, customer service costs and
credit card fees, and is recorded in the same period in which related revenues have been recorded. Cost of goods sold, including product cost and other costs
and fulfillment and related costs are as follows (in thousands):
89