Overstock.com 2002 Annual Report Download - page 41

The Financial Accounting Standards Board issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections. Among other things, SFAS No. 145 eliminates the requirement that gains and losses from the extinguishment of debt be
classified as extraordinary items. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with early adoption permitted. The Company does
not expect the adoption of this standard to have a significant impact on its financial statements.
The Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146
addresses significant issues relating to the recognition, measurement, and reporting of costs associated with exit and disposal activities, including restructuring
activities, and nullifies the guidance in Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring. SFAS No. 146 is effective for exit or disposal activities initiated after
December 31, 2002, with earlier application encouraged. The Company does not expect the adoption of this standard to have a significant impact on its
financial statements.
The Financial Accounting Standards Board issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, an
amendment of FASB Statement No. 123. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee compensation, SFAS No. 148 also amends the disclosure provisions of SFAS
No. 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based
employee compensation. The Company has adopted the disclosure provisions of this statement as of December 31, 2002.
3. INITIAL PUBLIC OFFERING
On June 4, 2002, the Company closed its initial public offering, pursuant to which it sold 2,155 shares of its common stock, and a selling shareholder
sold 845 shares of common stock at a price of $13.00 per share. The offering resulted in proceeds to the Company of approximately $24,880, net of $2,014 of
issuance costs. As part of the offering, the Company granted the underwriter the right to purchase up to 450 additional shares within thirty days after the
offering to cover over-allotments. On June 27, 2002, the underwriter purchased an additional 101 shares of stock for $1,260. At the closing of the offering, all
issued and outstanding shares of the Company's redeemable convertible preferred stock were automatically converted into common stock on a 1:1 basis.
As part of the initial public offering, the Company paid $439 of selling costs on behalf of the selling shareholder. This amount was recorded in other
income (expense) in the statement of operations for the year ended December 31, 2002.
4. ACQUISITION OF GEAR.COM, INC.
On November 28, 2000, the Company completed the acquisition of Gear.com, Inc. (the "Gear Acquisition"), valued at $11,097. The purchase price
included the issuance of 2,055 shares of the Company's common stock and 181 options to purchase common stock as well as the assumption of $3,405 in
liabilities including $1,300 of acquisition integration costs. The Gear Acquisition was accounted for by the purchase method of accounting. Results of
operations of Gear.com have been included in the Company's consolidated financial statements since the date of acquisition.
The acquired assets and assumed liabilities consist of the following:
Cash $ 3,499
Inventory 3,561
Prepaid expenses and other current assets 495
Property and equipment 787
Goodwill 6,160
Accounts payable and accrued liabilities (3,405)
$ 11,097
As a result of the acquisition of Gear.com, the Company incurred incremental costs to exit and consolidate activities at Gear.com locations, to
involuntarily terminate Gear.com employees, and for other costs to integrate operating locations and other activities of Gear.com with the Company totaling
$1,300. Generally accepted accounting principles require that these acquisition integration costs, which are not associated with the generation of future
revenues and have no future economic benefit, be reflected as assumed liabilities in the allocation of the purchase price to the net assets acquired.
The components of the acquisition integration liabilities included in the purchase price allocation for Gear.com are as follows:
Original
Costs Utilized
Reversed
Against
Goodwill
Balance
Remaining at
December 31,
2001
Lease exit costs $ 650 $ 556 $ 94 $ —
Workforce reductions 250 250 — —
Fulfillment contract termination costs 400 400 — —
$ 1,300 $1,206 $ 94 $ —
The lease exit costs represented the remaining minimum payments on an office lease, less anticipated sublease revenue. The workforce reductions
represented the termination of 45 Gear.com employees. The fulfillment contract termination cost represented the early termination penalty on a fulfillment
contract which the Company terminated in October 2001. A final adjustment to the estimated lease exit costs of $94 was included in the allocation of the
purchase price of Gear.com, as the adjustment was determined within the purchase price allocation period.
Assuming the acquisition of Gear.com had been made as of January 1, 2000, the Company's pro forma consolidated revenues for the year ended
December 31, 2000 would have been $35,394 (unaudited), the pro forma consolidated net loss would have been $34,564 (unaudited) and the pro forma basic
and diluted loss per share would have been $5.38 (unaudited).