Overstock.com 2015 Annual Report Download - page 45

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
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 Item 15 of Part IV, "Financial Statements"—Note 20. 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.
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, 2015 (in thousands):







2
$ (6,892)
$ (905)
1
$ (2,282)
$ (307)
As reported
As reported
As reported
(1)
$ 8,917
$ 1,117
(2)
$ 15,397
$ 1,952
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.

Customer orders are recorded as deferred revenue prior to delivery of products or services ordered. We record amounts received for Club O Gold
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.
44