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OVERSTOCK.COM, INC (OSTK)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/31/2010
Filed Period 12/31/2009

Table of contents

  • Page 1
    OVERSTOCK.COM, INC (OSTK) 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/31/2010 Filed Period 12/31/2009

  • Page 2
    ... of incorporation or organization) 6350 South 3000 East Salt Lake City, Utah 84121 (Address of principal executive offices including zip code) (801) 947-3100 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of...

  • Page 3
    ... reporting company o The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second quarter (June 30, 2009), was approximately $108.2 million based upon the last sales price...

  • Page 4
    ... that we pay our drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time. Specifically, these errors related to (1) amounts we paid to partners or deducted from partner payments related to return processing services and product costs and (2) amounts...

  • Page 5
    ...June 30, September 30, 2008 2008 2008 2008 2008 2009 2009 2009 The effect of the adjustments related to (1) amounts the Company paid to partners or deducted from payments to partners related to return processing services and product costs and (2) amounts the Company paid to a freight vendor based on...

  • Page 6
    ... amends and restates the 2008 financial statements and data in Item 1 of Part I, Items 6,7 and 8 on Form 10-K/A for the year ended December 31, 2008, as filed on March 5, 2009, in each case, solely as a result of, and to reflect, the restatement, and no other information in the Annual Report on Form...

  • Page 7
    ... dated certifications of our principal executive officer and principal financial officer included in this Form 10-K. As required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, the certifications of our principal executive officer and principal financial officer, are attached to this Form...

  • Page 8
    ... About Market Risk 80 Item 8. Financial Statements and Supplementary Data 80 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 80 Item 9A. Controls and Procedures 80 Item 9B. Other Information 84 Part III Item 10. Directors, Executive Officers and Corporate...

  • Page 9
    ... our facilities consolidation and restructuring program and of the various actions we have taken in connection with that program; the possibility that we will relocate our corporate offices or consolidate our warehouses; statements about our community site business and its anticipated functionality...

  • Page 10
    ... at appropriate levels despite the seasonal nature of our business; and our belief that we can successfully offer and sell a constantly changing mix of products and services. Furthermore, in some cases, you can identify forward-looking statements by terminology such as may, will, could, should...

  • Page 11
    ... for the buying and selling of goods and services-as well as online sites for listing cars and real estate for sale. In October 2009, we also launched O.biz, a website where customers can shop for bulk and business related items. Though our two websites are located at different domain addresses, the...

  • Page 12
    ... high-quality, brand-name merchandise at discount prices. We have organized our shopping business (sales of product offered through the Shopping Section of our Website) into two principal segments-a "direct" business and a "fulfillment partner" business (see Item 15 of Part IV, "Financial Statements...

  • Page 13
    ... our auction business is included in the fulfillment partner segment. Car listing business We operate an online site for listing cars for sale as a part of our Website. The car listing service allows sellers to list vehicles for sale and allows buyers to review vehicle descriptions, post offers to...

  • Page 14
    ... Website. Products Online Products Our Website is organized into five main sections: Shopping, Auctions, Cars, Real Estate, and Community. The Shopping section is organized into eleven main departments: Furniture, Home & Garden, Bedding & Bath, Clothing & Shoes, Jewelry, Watches, Electronics, Sports...

  • Page 15
    ... fulfillment and timely shipment. Payment Terms Generally, we require verification of receipt of payment, or authorization from credit card or other payment vendors whose services we offer to our customers (such as PayPal and BillMeLater), before we ship products to consumers or business purchasers...

  • Page 16
    ..., as new competitors can launch new websites at relatively low cost. We believe that competition in the online liquidation market is based predominantly on price; product quality and selection; shopping convenience; order processing and fulfillment; customer service; and company brand recognition...

  • Page 17
    ..., "Financial Statements"-Note 25-"Business Segments" for more information. Intellectual Property We regard our domain names and similar intellectual property as critical to our success. We rely on a combination of laws and contractual restrictions with our employees, customers, suppliers, affiliates...

  • Page 18
    ... to the Internet and commercial online services. These issues may take years to resolve. In addition, new state tax regulations may subject us to the obligation to collect and remit state and local taxes other than for sales within the state of Utah (where our operations are located), or subject us...

  • Page 19
    ... 41 Senior Vice President, Marketing and Customer Care Stephen P. Tryon 48 Senior Vice President, Supply Chain and Human Capital Management Dr. Patrick M. Byrne has served as our Chief Executive Officer (principal executive officer) and as a Director since October 1999, as Chairman of the Board from...

  • Page 20
    ... as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our Internet Website and the information contained therein or connected thereto are not a part of or incorporated into this Annual Report on Form 10-K. 17

  • Page 21
    ... of suppliers from whom we purchase goods, a condition that can result in an increase in the cost to us of the goods we sell to our customers. Decreases in discretionary consumer spending may have an adverse effect on us. A substantial portion of the products and services we offer are products or...

  • Page 22
    ... our customer service capabilities to better serve our customers' needs; expand or modify our product offerings; build out and occupy warehouse and office space; increase our general and administrative functions to support our operations; and maintain or increase our sales, branding and marketing...

  • Page 23
    ... reported financial information, negatively affect the market price of our common stock, subject us to regulatory investigations and penalties, and adversely impact our business and financial condition. Changes in accounting standards and subjective assumptions, estimates and judgments by management...

  • Page 24
    ... customers access our Website within a short period of time due to increased holiday demand, we may experience system interruptions that make our Website unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we sell and the attractiveness of our products...

  • Page 25
    ... third parties for the shipment of products to customers. We cannot be sure that these relationships will continue on terms we find acceptable, or at all. Unexpected increases in shipping costs or delivery times, particularly during the holiday season, could harm our business, prospects, financial...

  • Page 26
    ... profit margins; and reduced shipment quality, which may result in delivery of damaged products. We depend upon our credit card processor and payment card association. Our customers primarily use credit cards to buy from us. We are dependent upon our credit card processor to process the sales...

  • Page 27
    ... change, obsolescence and price erosion (for example, computer hardware, software and consumer electronics) and because we sometimes make large purchases of particular types of inventory. In addition, we often do not receive warranties on the merchandise we purchase. Subject to our returns policies...

  • Page 28
    ... to offer additional types of products or services and we cannot offer any assurance that any of them will be successful. From time to time we have also modified aspects of our business model relating to our product mix and the mix of direct/ fulfillment partner sourcing of the products we offer. We...

  • Page 29
    ... with online services, search engines, affiliate marketing websites, directories and other website and e-commerce businesses to provide content, advertising banners and other links that direct customers to our Website. We rely on these relationships as significant sources of traffic to our Website...

  • Page 30
    ... the online auctions, car listing and real estate listing businesses in which we compete with large established businesses including eBay, Inc., AutoTrader.com, Inc. and Realtor.com. Many of our current and potential competitors described above have longer operating histories, larger customer bases...

  • Page 31
    ... of customer service, impaired quality and delays in reporting accurate financial information. Our transaction processing systems and network infrastructure may be unable to accommodate increases in traffic in the future. We may be unable to project accurately the rate or timing of traffic increases...

  • Page 32
    ...businesses. We may face material delays in introducing new services, products and enhancements. If this happens, our customers may forego the use of our Website and use those of our competitors. The Internet and the online commerce industry are rapidly changing. If competitors introduce new products...

  • Page 33
    ...substantial litigation. From time to time we receive claims of and become subject to consumer protection, employment, intellectual property and other commercial litigation related to the conduct and operation of our business and the sale of products on our Website. In connection with such litigation...

  • Page 34
    ... from third parties as well internally developed technology to provide the security and authentication necessary to effect secure transmission of confidential information such as customer credit card numbers. We cannot provide assurance that advances in computer capabilities internet technology, new...

  • Page 35
    ... business, prospects, financial condition and results of operations. Public statements we or our chief executive officer, Patrick M. Byrne, have made or may make in the future may antagonize regulatory officials or others. We and our chief executive officer, Patrick M. Byrne, have from time to time...

  • Page 36
    ... requirements, without similar application of these laws to traditional retail establishments, online or printed classified advertising publications, or other types of sales list services. To the extent that such current or future laws or regulations prevent or inhibit users from selling items 33

  • Page 37
    ... activities using those companies' auction sites. We do not have the ability to require users of our services to fulfill their obligations to make payments or to deliver items. We periodically receive complaints from buyers about the quality or authenticity of the items they purchase, requests for...

  • Page 38
    ...prevent users from selling items on our car and real estate listing sites, they could harm our business. Our business may be harmed if our car and real estate listing sites are used for unlawful transactions. The law regarding the potential liability of an online listing service for automobile sales...

  • Page 39
    ... listing service for damages because of user conduct. We may encounter similar legal actions in connection with our cars and real estate listing businesses, which may harm our business or reputation among consumers. Risks Relating to our Community Site Our community site business is a new business...

  • Page 40
    ... businesses have a short track record. If consumers are unwilling to use the Internet to conduct business, our business may not develop profitably. The security risks or perception of risks of e-commerce may discourage customers from purchasing goods from us. In order for the e-commerce market...

  • Page 41
    ... or the merchandise of third parties that we offer for sale on our Website, or that we should pay commercial activity taxes, our business could be harmed. We do not currently collect sales or other similar taxes for physical shipments of goods into states other than Utah. One or more local, state...

  • Page 42
    ... levels. These laws and regulations could cover issues such as user privacy, behavioral advertizing, freedom of expression, pricing, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of existing laws...

  • Page 43
    ...affect the market price of our securities are as follows changes in securities analysts' recommendations or estimates of our financial performance or publication of research reports by analysts; changes in market valuations of similar companies; announcements by us or our competitors of significant...

  • Page 44
    ... customer service; increases in the cost of fuel and transportation; our ability to successfully integrate operations and technologies from acquisitions or other business combinations; offering new lines of products; and our ability to attract users to our auctions, car listing and real estate sites...

  • Page 45
    ... our company. The price of our stock may be vulnerable to manipulation. We have filed an unfair business practice lawsuit against Morgan Stanley & Co. Incorporated, Goldman Sachs & Co., Bear Stearns Companies, Inc., Bank of America Securities LLC, Bank of New York, Citigroup Inc., Credit Suisse (USA...

  • Page 46
    ... IT data center located in Salt Lake City, Utah. The lease expires on June 30, 2011. We believe that the above listed facilities will be sufficient for our needs for at least the next twelve months, subject to seasonal requirements for additional warehouse and customer service space during the...

  • Page 47
    ... ISSUER PURCHASES OF EQUITY SECURITIES Market information Our common stock is traded on the NASDAQ Global Market under the symbol "OSTK." The following table sets forth, for the periods indicated, the high and low sales prices per share for our common stock as reported by NASDAQ. Common Stock Price...

  • Page 48
    .... We have been informed that the Hemscott Internet Software and Services Index and the NASDAQ Market Index-US are being phased out, and we will replace them with the Morningstar Online Retail Index because it is composed of companies in businesses similar in many ways to our business, and the NASDAQ...

  • Page 49
    ... and the nature of any such purchases. Column (b) sets forth the average price paid per share. Column (c) sets forth the total number of shares purchased as part of publicly announced repurchase plans or programs. Column (d) sets forth the maximum number (or approximate dollar value) of shares...

  • Page 50
    ... which we do not intend to make further purchases. Period (a) Total Number of Shares (or Units) Purchased (b) Average Price Paid per Share or Unit (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of...

  • Page 51
    ... that we pay our drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time. Specifically, these errors related to (1) amounts we paid to partners or deducted from partner payments related to return processing services and product costs and (2) amounts...

  • Page 52
    ... of these adjustments were related to a reduction in revenue and cost of goods sold in equal amounts for certain consideration we received from vendors, an increase in inventory, accounts payable and accrued liabilities to record our sales return allowance on a gross basis, an adjustment to our cash...

  • Page 53
    ... 2008(4) (Restated) 2009 (in thousands, except per share data) Consolidated Statement of Operations Data: Revenue, net Direct Fulfillment partner Total net revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing Technology...

  • Page 54
    ... to our Letters of Credit and Purchasing Card, which are collateralized by cash balances held at our bank, from Cash and cash equivalents to Restricted cash. (2) (3) (4) As discussed in Item 15 of Part IV "Financial Statements"-Note 3-"Restatement of Financial Statements," on January 29, 2010...

  • Page 55
    ... that we pay our drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time. Specifically, these errors related to (1) amounts we paid to partners or deducted from partner payments related to return processing services and product costs and (2) amounts...

  • Page 56
    ... (sales of product offered through the Shopping section of our Website) into two principal segments-a "direct" business and a "fulfillment partner" business (see Item 15 of Part IV, "Financial Statements"-Note 25 -"Business Segments"). We include revenue from our auctions, car listings, real estate...

  • Page 57
    ... our auction business is included in the fulfillment partner segment. Car listing business We operate an online site for listing cars for sale as a part of our Website. The car listing service allows sellers to list vehicles for sale and allows buyers to review vehicle descriptions, post offers to...

  • Page 58
    ...: direct revenue and fulfillment partner revenue, including listing fees and commissions collected from products being listed and sold through the Auctions tab of our Website as well as advertisement revenue derived from our cars and real estate listing business, and from advertising on our shopping...

  • Page 59
    ... sales through our Website which fulfillment partners ship directly to our customers from warehouses maintained by our fulfillment partners. We provide an online auction service on our Website. The Auctions business allows sellers to list items for sale, buyers to bid on items of interest, and users...

  • Page 60
    ... on the purchase of an advertised vehicle. Revenue from the cars listing business is recorded net and is included in the fulfillment partner segment. We provide an online site for listing real estate for sale as a part of our Website. The real estate listing service allows customers to search active...

  • Page 61
    ...those respective periods. The decrease in costs associated with internal-use software and website development is primarily related to the greater number of software licenses purchased in 2008 compared to 2009. Accounting for income taxes Significant management judgment is required in determining our...

  • Page 62
    ... during the year ended December 31, 2008, and 2009. Stock-based compensation Stock options We measure compensation cost for all outstanding unvested stock-based awards at fair value on date of grant and recognize compensation expense over the service period for awards expected to vest on a straight...

  • Page 63
    ... of 2009, compared to the same periods of 2008, in spite of the weakness in the overall US economy. Our business model continues to mature. Through expanding the number of partners we work with, and the number of categories and products we offer on our Website, the fulfillment partner business now...

  • Page 64
    ...2007, 2008 and 2009: Years ended December 31 2007 2008 (Restated) (as a percentage of total revenue) 2009 Revenue, net Direct Fulfillment partner Total net revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing Technology...

  • Page 65
    ... direct business and fulfillment partner business; changes in vendor and / or customer pricing, including competitive pricing, and inventory management decisions within the direct business; sales coupons and promotions; product mix of sales; operational and fulfillment costs. Gross margin increased...

  • Page 66
    ... statements (see Item 15 of Part IV, "Financial Statements"-Note 3-"Restatement of Financial Statements") for additional information. During our review of our partner billing system for returns, we additionally discovered that we had underbilled our fulfillment partners for certain fees and charges...

  • Page 67
    ... manage customer service costs and credit card fees. There have been no significant changes in our fulfillment costs during the year ended December 31, 2009. See "Gross profit" above for additional discussion. Operating expenses Sales and marketing expenses. We direct customers to our Website...

  • Page 68
    ... on the consolidated statements of operations as follows (in thousands): Year ended December 31, 2008 (Restated) 2009 Cost of goods sold-direct Sales and marketing Technology General and administrative Total depreciation and amortization, including internal-use software and website development Non...

  • Page 69
    ... receivable (see Item 15 of Part IV, "Financial Statements"-Note 5 -"Acquisition and Subsequent Discontinued Operations") and a $300,000 other-than-temporary impairment of marketable securities. Sale of discontinued operations On January 21, 2009, we entered into a Note Purchase Agreement to settle...

  • Page 70
    ...our direct business and fulfillment partner business; changes in vendor and / or customer pricing, including competitive pricing, and inventory management decisions within the direct business; sales coupons and promotions; product mix of sales; operational and fulfillment costs. Gross margin for the...

  • Page 71
    ... IV, "Financial Statements"-Note 3-"Restatement of Financial Statements") for additional information. Cost of goods sold includes stock-based compensation of $460,000 and $198,000 for the years ended December 31, 2007 and 2008, respectively. Direct Gross Profit-Gross profit for our direct business...

  • Page 72
    ...manage costs at our warehouses, significant changes in the number of units received and fulfilled, the extent to which we utilize third party fulfillment services and warehouses, and our ability to effectively manage customer service costs and credit card fees. Operating expenses Sales and marketing...

  • Page 73
    ... in the consolidated statements of operations as follows (in thousands): Year Ended December 31, 2007 2008 (Restated) Cost of goods sold-direct Sales and marketing Technology General and administrative Total depreciation and amortization, including internal-use software and website development Non...

  • Page 74
    ..."-Note 19-"Stock and Debt Repurchase Program"), a $3.9 million loss on the settlement of notes receivable (see Item 15 of Part IV, "Financial Statements"-Note 5-"Acquisition and Subsequent Discontinued Operations") and a $300,000 otherthan-temporary impairment of marketable securities. Sale of...

  • Page 75
    ...generally corresponds to our net sales as our customers primarily use credit cards to buy from us causing our receivables from these sales transactions to settle quickly. We have payment terms with our fulfillment partners that generally extend beyond the amount of time necessary to collect proceeds...

  • Page 76
    ...provided by investing activities corresponds with purchases, sales, and maturities of marketable securities and cash expenditures for fixed assets, including internal-use software and website development costs. For the years ended December 31, 2008 and 2009, investing activities resulted in net cash...

  • Page 77
    ... and June 30, 2009. We intend to make a rescission offer to affected participants in the Plan who acquired shares of our common stock between July 1, 2008 and June 30, 2009, subject to compliance with applicable regulatory requirements. Based on the closing price of Overstock common stock of $13.56...

  • Page 78
    ... 5, 2008. The new shelf registration statement registers offerings of our securities in an aggregate amount of up to $500.0 million. However, as a result of our inability to timely file a Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 containing financial statements reviewed...

  • Page 79
    .... Wells Fargo Commercial Purchasing Card Agreement. We had a commercial purchasing card agreement (the "Purchasing Card") with Wells Fargo Bank, National Association ("Wells Fargo") that expired on January 1, 2010. We used the Purchasing Card for business purpose purchasing and must pay it in full...

  • Page 80
    ... or form any subsidiary or other entity, (e) make loans or advances, (f) purchase, acquire or redeem shares of our capital stock or other securities, (g) change our capital structure or issue any new class of capital stock, (h) change our business objectives, purposes or operations in a manner which...

  • Page 81
    .... When viewed with our GAAP gross profit less sales and marketing expenses, we believe Contribution and Contribution margin provides management and users of the financial statements information about our ability to cover our fixed operating costs, such as technology and general and administrative...

  • Page 82
    ... 31, 2008 (Restated) 2009 $ 829,850 $ 876,769 Total revenue 685,614 712,017 Cost of goods sold 144,236 164,752 Gross profit 57,668 55,549 Less: Sales and marketing expense $ 86,568 $ 109,203 Contribution 10.4% 12.5% Contribution margin Free Cash Flow. Free cash flow (a non-GAAP financial measure...

  • Page 83
    ... financial statements for all interim periods in the year ended December 31, 2008 and the interim periods ended March 31, 2009, June 30, 2009 and September 30, 2009 within this Form 10-K to correct the following errors: • Accounting for amounts that we pay our drop ship fulfillment partners...

  • Page 84
    ...the Chief Executive Officer (principal executive officer) and Senior Vice President, Finance and Risk Management (principal financial officer) concluded that our disclosure controls and procedures were not effective as of December 31, 2009, the end of the period covered by this Annual Report on Form...

  • Page 85
    ... Management's Report on Internal Control over Financial Reporting (Item 9A(c)). Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting...

  • Page 86
    ... over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses related to the lack of a sufficient number of accounting professionals...

  • Page 87
    ...our accounting and financial reporting department to improve supervisory review. We are hiring additional experienced and qualified professionals for our internal audit department. We have reorganized our supply chain department to provide comprehensive oversight over our returns process and partner...

  • Page 88
    ... set forth in our definitive proxy statement for our 2010 annual meeting of stockholders and is incorporated herein by reference. We have adopted a Code of Business Conduct and Ethics, which is applicable to all employees of the Company, including the principal executive officer, principal financial...

  • Page 89
    ...they are either not required, not applicable, or the information has otherwise been shown in the consolidated financial statements or notes thereto. 3. Exhibits The exhibits listed below are filed as part of, or incorporated by reference into, this Form 10-K. Exhibit Number Description of Document...

  • Page 90
    ... Agreement by and between Overstock.com, Inc., Information Technology International, Inc., and Old Mill Building LLC (incorporated by reference to Exhibit 99.3 to our Report on Form 8-K/A filed on December 7, 2004). Old Mill Corporate Center Fourth Amendment to the Lease Agreement (incorporated by...

  • Page 91
    ... 31, 2008 as filed on February 23, 2009) Consent of Independent Registered Public Accounting Firm Consent of Independent Registered Public Accounting Firm Powers of Attorney (see signature page) Exhibit 31 Certification of Chief Executive Officer Exhibit 31 Certification of Chief Financial Officer...

  • Page 92
    ... M. BYRNE Patrick M. Byrne Chief Executive Officer (Principal Executive Officer), Chairman of the Board March 31, 2010 /s/ STEPHEN J. CHESNUT Senior Vice President, Finance and Risk Management (Principal Financial Officer and Principal Accounting Officer) Stephen J. Chesnut /s/ ALLISON H. ABRAHAM...

  • Page 93
    ... of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statement of Stockholders' Equity (Deficit) and...

  • Page 94
    ...financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Overstock.com Inc.'s internal control over financial reporting...

  • Page 95
    ... audits provide a reasonable basis for our opinion. As described in Note 3 to the consolidated financial statements, the financial statements for 2008 have been restated for the correction of errors. /s/ PricewaterhouseCoopers LLP Salt Lake City, Utah February 23, 2009, except for Note 3, for which...

  • Page 96
    ... Overstock.com, Inc. Consolidated Balance Sheets (in thousands) December 31, December 31, 2008 2009 (Restated) Assets Current assets: Cash and cash equivalents Restricted cash Marketable securities Accounts receivable, net Notes receivable (Note 5) Inventories, net Prepaid inventory, net Prepaids...

  • Page 97
    ... data) Year ended December 31 2007 2008 (Restated) 2009 Revenue, net Direct Fulfillment partner Total net revenue Cost of goods sold Direct(1) Fulfillment partner Total cost of goods sold Gross profit Operating expenses: 55,458 57,668 55,549 Sales and marketing(1) 59,453 56,677 52,336 Technology...

  • Page 98
    ...423 $ 2007 Stock-based compensation to employees and directors - (Restated) Stock-based compensation to consultants in exchange - for services Stock based compensation related to performance - shares Exercise of stock 113 options Purchase of - treasury stock Treasury stock issued for 401(k) matching...

  • Page 99
    ... gain on marketable - securities Cumulative translation - adjustment Total comprehensive - loss (Restated) Balances at December 31, 2008 25,438 (Restated) Stock-based compensation to employees - and directors Stock-based compensation to consultants in exchange - for services Common stock issued upon...

  • Page 100
    ... activities of continuing operations: Purchases of marketable securities Maturities of marketable securities Sale of marketable securities prior to maturity Expenditures for fixed assets, including internal-use software and website development Proceeds from the sale of discontinued operations, net...

  • Page 101
    ... Prior year discretionary 401(k) contribution settled in treasury stock 114,695 92,807 96,457 $ 92,807 $ 96,457 $ 139,757 3,882 $ - - 6,000 - - 494 408 3,390 $ - 1,864 - 2,386 1,200 19 3,006 1,632 - - 400 967 354 - See accompanying notes to consolidated financial statements. F-7

  • Page 102
    ..., home décor, kitchenware, watches, jewelry, electronics and computers, sporting goods, apparel, and designer accessories, among other products. The Company also sells books, magazines, CDs, DVDs and video games ("BMMG"). As part of its Website, the Company also offers an online auction service...

  • Page 103
    ..., 2008 and 2009, restricted cash was $4.3 million and $4.4 million and was held primarily in money market accounts. Marketable securities Marketable securities consist of funds deposited into capital management accounts at one financial institution. The Company generally invests excess cash in short...

  • Page 104
    ... debt pricing model with observable market inputs, which include stock price, dividend payments, borrowing costs, equity volatility, interest rates and interest spread. Accounts receivable Accounts receivable consist principally of trade amounts due from customers and from uncleared credit card...

  • Page 105
    ... assets at December 31, 2008 and 2009 were $9.6 million and $10.3 million, respectively. Fixed Assets Fixed assets, which include assets such as furniture and fixtures, technology infrastructure, internal-use software and website development, are recorded at cost and depreciated or amortized F-11

  • Page 106
    ...31, 2007 2008 (Restated) 2009 $ 1,882 $ 1,674 $ 1,264 Cost of goods sold-direct - - - Sales and marketing 27,507 21,140 10,943 Technology 106 154 676 General and administrative Total depreciation and amortization, including internal-use $29,495 $ 22,968 $12,883 software and website development Upon...

  • Page 107
    ... Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) other incentives. The Company recognizes lease costs on a straight-line basis without regard to deferred payment terms, such as rent holidays that defer the commencement date of required...

  • Page 108
    ...fulfillment partner revenue, including listing fees and commissions collected from products being listed and sold through the Auctions tab of its Website as well as advertisement revenue derived from its cars and real estate listing businesses, and from advertising on its shopping pages. The Company...

  • Page 109
    ... the purchase of an advertised vehicle. Revenue from its cars listing business is recorded net and is included in the fulfillment partner segment. The Company provides an online site for listing real estate for sale as a part of its Website. The real estate listing service allows customers to search...

  • Page 110
    ... Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) In October 2009, the Company introduced O.biz, a website where customers and businesses can shop for bulk and business related items, while offering manufacturers, distributors and other retailers an alternative sales...

  • Page 111
    ... 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. Fulfillment costs include warehouse handling labor costs, fixed warehouse costs, credit card fees and customer service costs...

  • Page 112
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) Stock-based compensation The Company measures compensation expense for all outstanding unvested share-based awards at fair value on date of grant and recognizes ...

  • Page 113
    ... period presented. The Company's subsidiary was located in Mexico and ceased operations on October 24, 2008. Earnings (loss) per share Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common shares by the weighted average number of common shares outstanding...

  • Page 114
    ... Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) The following table sets forth the computation of basic and diluted net income (loss) per common share for the periods indicated (in thousands, except per share data): Year ended December 31, 2007 2008 (Restated) 2009...

  • Page 115
    ... financial statements for all interim periods for the year ended December 31, 2008 within this Form 10-K to correct the following errors: • Accounting for amounts that the Company pays its drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time...

  • Page 116
    ...): Year ended December 31, 2008 The effect of the adjustments related to (1) amounts the Company paid to partners or deducted from payments to partners related to return processing services and product costs and (2) amounts the Company paid to a freight vendor based on incorrect invoices from...

  • Page 117
    ... OF FINANCIAL STATEMENTS (Continued) Overstock.com Consolidated Statement of Operations (in thousands, except per share data) Year ended December 31, 2008 As Previously Reported Adjustments As Restated Revenue, net Direct Fulfillment partner Total net revenue Cost of goods sold Direct Fulfillment...

  • Page 118
    ... Financial Statements (Continued) 3. RESTATEMENT OF FINANCIAL STATEMENTS (Continued) Overstock.com Consolidated Balance Sheet (in thousands) December 31, 2008 As Previously Reported Adjustments As Restated Assets Current assets: Cash and cash equivalents Restricted cash Marketable securities...

  • Page 119
    ... including internal-use software and website development Realized loss on marketable securities Loss on settlement of notes receivable Loss on disposition of fixed assets Stock-based compensation to employees and directors Stock-based compensation to consultants for services Stock-based compensation...

  • Page 120

  • Page 121
    ... Adjustments 12/31/2008 Expense Payments Adjustments 12/31/2009 (Restated) Lease and contract termination costs $ 4,035 $ 351 $ (1,099) $ (299) $ 2,988 $ 285 $ (522) $ (66) $ 2,685 Under the restructuring program, the Company recorded $12.3 million of restructuring charges for the year...

  • Page 122
    ...the financial condition of the issuer and the Company's ability and intent to hold the investment for a period of time which may be sufficient for anticipated recovery of market value. The Company records an impairment charge to the extent that the carrying value of its available-for-sale securities...

  • Page 123
    ... to Consolidated Financial Statements (Continued) 6. MARKETABLE SECURITIES (Continued) The following table summarizes the Company's marketable security investments as of December 31, 2008 (in thousands): Cost Net Unrealized Gains Estimated Fair Market Value Marketable securities: $ 8,941 $ 48...

  • Page 124
    ...Financial Statements (Continued) 9. INVENTORIES Inventories consist of the following (in thousands): December 31, 2008 (Restated) 2009 Product...December 31, 2008 (Restated) 2009 Computer hardware and software, including internal-use software and website development Furniture and equipment Leasehold...

  • Page 125
    ...31, 2008 (Restated) 2009 Accrued payroll and other related costs Allowance for returns Accrued marketing expenses Accounts payable accrual Accrued professional expenses Accrued freight Inventory received but not invoiced Accrued taxes Short term portion of restructuring accrual (Note 4) Credit card...

  • Page 126
    .... Wells Fargo Commercial Purchasing Card Agreement The Company had a commercial purchasing card agreement (the "Purchasing Card") with Wells Fargo Bank, National Association ("Wells Fargo"). The Company used the Purchasing Card for business purpose purchasing and was required to pay it in full...

  • Page 127
    ... or form any subsidiary or other entity, (e) make loans or advances, (f) purchase, acquire or redeem shares of its capital stock or other securities, (g) change its capital structure or issue any new class of capital stock, (h) change its business objectives, purposes or operations in a manner which...

  • Page 128
    ... with certain affirmative covenants, including making principal and interest payments when due, maintaining the Company's corporate existence and properties, and paying taxes and other claims in a timely manner. On January 14, 2008 and February 17, 2009, the Board of Directors approved two debt...

  • Page 129
    ... 15, 2008 and interim periods within those fiscal years. The adoption of ASC 470-20 did not have a material impact on the consolidated financial statements. Capital leases The Company leased certain software and computer equipment during the year ended December 31, 2009, under non-cancelable leases...

  • Page 130
    ... From time to time, the Company receives claims of and becomes subject to consumer protection, employment, intellectual property and other commercial litigation related to the conduct and operation of the Company's business and the sale of products on the Company's Website. In connection with...

  • Page 131
    ... Stanley & Co. Incorporated, Goldman Sachs & Co., Bear Stearns Companies, Inc., Bank of America Securities LLC, Bank of New York, Citigroup Inc., Credit Suisse (USA) Inc., Deutsche Bank Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and UBS Financial Services, Inc. In September 2007...

  • Page 132
    ... of core and partner product, as well as other site-defined terms, and the methods of internal and external pricing of products, as well as documents related to the pricing of a list of product items identified in the subpoena. The Company has responded to the subpoena and has engaged in resolution...

  • Page 133
    ..., common law fraud and New York consumer fraud laws. The Company filed a motion to dismiss based upon assertions that the Company's agreement with its customers requires all such actions to be arbitrated in Salt Lake City, Utah. Alternatively, the Company asked that the case be transferred to...

  • Page 134
    ... District of California. The Company is alleged to have infringed a patent covering search and categorization software. The Company believes that certain third party vendors of products and services sold to the Company are contractually obligated to indemnify the Company in this action. On November...

  • Page 135
    ... District of California for trademark infringement for heart-shaped, peace sign jewelry. The Company believes that certain third party vendors of such products sold to the Company are contractually obligated to indemnify the Company in this action. The Company has answered the complaint. The case is...

  • Page 136
    ... July 1, 2008 and June 30, 2009. The Company intends to make a rescission offer to affected participants in the Plan who acquired shares of Overstock.com common stock between July 1, 2008 and June 30, 2009, subject to compliance with applicable regulatory requirements. Based on the closing price of...

  • Page 137
    ... Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 19. STOCK AND DEBT REPURCHASE PROGRAM (Continued) market purchases for $13.4 million as of December 31, 2008. In addition, during the year ended December 31, 2008, the Company retired $9.5 million of the Senior Notes...

  • Page 138
    .... Notes to Consolidated Financial Statements (Continued) 20. STOCK BASED AWARDS (Continued) Company adopted SAB No. 110 effective January 1, 2008 and will continue to use the simplified method in developing the expected term used for its valuation of stock-based compensation. Expected Dividend: The...

  • Page 139
    ...cash received from employees as a result of employee stock option exercises during the years ended December 31, 2007, 2008 and 2009 were approximately $3.2 million, $1.5 million and $29,000, respectively. In connection with these exercises, there was no tax benefit realized by the Company due to the...

  • Page 140
    ... 250,000 additional restricted stock units. Performance Share Plan In January 2006, the Board of Directors and Compensation Committee adopted the Overstock.com Performance Share Plan (the "Plan") and approved grants to executive officers and certain employees of the Company. The Plan provided for...

  • Page 141
    ... 2008. 21. EMPLOYEE RETIREMENT PLAN The Company has a 401(k) defined contribution plan which permits participating employees to defer up to a maximum of 25% of their compensation, subject to limitations established by the Internal Revenue Code. Employees who have completed a half-year of service and...

  • Page 142
    ...benefits will not be realized. The Company recorded a tax provision of $257,000 for the year ended December 31, 2009, for federal alternative minimum taxes and state taxes. At December 31, 2008 and 2009, the Company... operating losses are limited under Internal Revenue Code Section 382 to $799,000 a...

  • Page 143
    ... (an entity owned by the Company's Chairman and Chief Executive Officer) and certain affiliated entities make travel arrangements for Company executives and pay the travel related expenses incurred by its executives on Company business. In 2007, 2008, and 2009 the Company reimbursed Haverford-Valley...

  • Page 144
    ... associated with the Company's third-party fulfillment partner sales and are earned from selling the merchandise of third parties over the Company's Website. The costs for this segment include product costs and fulfillment costs, credit card fees and internal customer service costs. Assets have not...

  • Page 145
    ... the Company pays its drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time. Specifically, these errors related to (1) amounts the Company paid to partners or deducted from partner payments related to return processing services and product costs...

  • Page 146
    ...adjustments were related to a reduction in revenue and cost of goods sold in equal amounts for certain consideration the Company received from vendors, an increase in inventory, accounts payable and accrued liabilities to record the Company's sales return allowance on a gross basis, an adjustment to...

  • Page 147
    ...30, September 30, 2008 2008 2008 2008 2009 2009 2009 The effect of the adjustments related to (1) amounts the Company paid to partners or deducted from payments to partners related to return processing services and product costs and (2) amounts the Company paid to a freight vendor based on incorrect...

  • Page 148
    F-52

  • Page 149
    ...) (Restated) (As Reported) (Restated) Reported) (in thousands, except per share data) Consolidated Statement of Operations Data: Revenue, net $ 51,655 $ 51,764 $ 39,713 $ 39,832 Direct Fulfillment 150,145 151,050 148,489 149,004 partner Total net 201,800 202,814 188,202 188,836 revenue Cost of goods...

  • Page 150
    Net income (loss) per common share-diluted: Net income (loss) per share- $ (0.17) $ (0.20) $ (0.27) $ (0.32) diluted Weighted average common shares outstanding- 23,345 23,345 22,750 22,750 diluted $ (0.02) $ (0.07) $ (0.03) $ 0.04 22,768 22,768 22,745 22,827 F-53

  • Page 151
    ...) (Restated) Reported) (Restated) (As Reported) (in thousands, except per share data) Consolidated Statement of Operations Data: Revenue, net $ 34,882 $ 35,059 $ 28,685 $ 28,788 Direct Fulfillment 150,847 152,308 146,213 147,355 partner Total net 185,729 187,367 174,898 176,143 revenue Cost of goods...

  • Page 152
    Net income (loss) per common share-diluted: Net income (loss) per share- $ (0.17) $ (0.09) $ 0.01 $ 0.02 diluted Weighted average common shares outstanding- 22,803 22,803 23,049 23,107 diluted $ (0.06) $ (0.03) $ 0.55 22,824 22,824 23,272 F-54

  • Page 153
    ... Allowance for sales returns(2) Allowance for doubtful accounts Year ended December 31, 2008 Deferred tax valuation allowance Allowance for sales returns (Restated)(1) Allowance for doubtful accounts Year ended December 31, 2009 Deferred tax valuation allowance Allowance for sales returns Allowance...

  • Page 154

  • Page 155
    ...of Unwritten Compensation Arrangements Applicable to Non-Employee Directors of Overstock.com, Inc. The Company pays its non-employee directors $60,000 annually, at the rate of $15,000 per quarter. The Company also grants restricted stock units to directors, generally at the first Board meeting after...

  • Page 156
    QuickLinks Exhibit 10.29

  • Page 157
    ..., 2010, relating to the financial statements as of December 31, 2008 and for the two years then ended and financial statement schedule for each of the two years in the period ended December 31, 2008, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Salt Lake City, Utah March 31, 2010

  • Page 158
    QuickLinks Exhibit 23.1

  • Page 159
    ... with the necessary knowledge, experience, and training to adequately account for and perform adequate supervisory reviews of significant transactions and the inadequate design of information technology program change and program development controls. /s/ KPMG LLP Salt Lake City, UT March 31, 2010

  • Page 160
    QuickLinks Exhibit 23.2

  • Page 161
    ... and report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. (b) Date: March 31, 2010 /s/ PATRICK M. BYRNE Patrick M. Byrne Chief Executive Officer...

  • Page 162
    QuickLinks Exhibit 31.1

  • Page 163
    ...and report financial information; and any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. (b) Date: March 31, 2010 /s/ STEPHEN J. CHESNUT Stephen J. Chesnut Senior Vice President...

  • Page 164
    QuickLinks Exhibit 31.2

  • Page 165
    ... 10-K for the year ended December 31, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that information contained in such Report fairly presents in all material respects the financial condition and results of operations of...

  • Page 166
    QuickLinks EXHIBIT 32.1

  • Page 167
    ... 10-K for the year ended December 31, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that information contained in such Report fairly presents in all material respects the financial condition and results of operations of...

  • Page 168
    QuickLinks EXHIBIT 32.2