Overstock.com 2015 Annual Report Download - page 101

We expense the costs of producing advertisements the first time the advertising takes place and expense the cost of communicating advertising in
the period during which the advertising space or airtime is used. Internet advertising expenses are recognized as incurred based on the terms of the individual
agreements, which are generally: 1) a commission for traffic driven to the Website that generates a sale or 2) a referral fee based on the number of clicks on
keywords or links to our Website generated during a given period. Advertising expense is included in sales and marketing expenses and totaled $115.0
million, $99.6 million and $82.1 million during the years ended December 31, 2015, 2014 and 2013, respectively. Prepaid advertising (included in Prepaids
and other assets in the accompanying consolidated balance sheets) was $1.2 million and $1.5 million at December 31, 2015 and 2014, respectively.
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We measure compensation expense for all outstanding unvested share-based awards at fair value on the date of grant and recognize compensation
expense over the service period for awards expected to vest at the greater of a straight line basis or on an accelerated schedule when vesting of restricted stock
awards exceeds a straight line basis. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results differ from
estimates, such amounts are recorded as an adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures,
including types of awards, and historical experience. Actual results may differ substantially from these estimates (see Note 15—Stock-Based Awards).
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In the normal course of business, we are involved in legal proceedings and other potential loss contingencies. We accrue a liability for such matters
when it is probable that a loss has been incurred and the amount can be reasonably estimated. When only a range of probable loss can be estimated, the most
probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in
the range is accrued. We expense legal fees as incurred (see Note 12—Commitments and Contingencies).
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Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are
determined on the basis of the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse.
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In evaluating our ability to recover
our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including projected future
taxable income, scheduled reversals of our deferred tax liabilities, tax planning strategies, and results of recent operations.
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) we determine whether it is more likely
than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-
than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with
the related tax authority. We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying
consolidated income statement. Accrued interest and penalties are included within the related tax liability line in our consolidated balance sheets.
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Basic earnings per share is computed by dividing net income attributable to common shares by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to common shares for the period by the weighted
average number of common and potential common shares outstanding during the period. Potential common shares, comprising incremental common shares
issuable upon the exercise of stock options and restricted stock awards are included in the calculation of diluted earnings per common share to the extent
such shares are dilutive.
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