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OVERSTOCK.COM, INC (OSTK)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 02/28/2011
Filed Period 12/31/2010

Table of contents

  • Page 1
    OVERSTOCK.COM, INC (OSTK) 10-K Annual report pursuant to section 13 and 15(d) Filed on 02/28/2011 Filed Period 12/31/2010

  • Page 2
    ...incorporation or organization) 87-0634302 (I.R.S. Employer Identification Number) 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...

  • Page 3
    ... (June 30, 2010), was approximately $150.3 million based upon the last sales price reported by NASDAQ. For purposes of this disclosure, shares of Common Stock held by persons who hold more than 5% of the outstanding shares of Common Stock and shares held by officers and directors of the registrant...

  • Page 4
    ... with Accountants on Accounting and Financial Disclosure 74 Item 9A. Controls and Procedures 75 Item 9B. Other Information 77 Part III Item 10. Directors, Executive Officers and Corporate Governance 78 Item 11. Executive Compensation 78 Item 12. Security Ownership of Certain Beneficial Owners and...

  • Page 5
    ... adequacy of our customer service capabilities; our expectations regarding the adequacy of our office and warehouse facilities; our expectations regarding our auctions service, our international sales efforts, our real estate listing service, our car listing service and our community site, and the...

  • Page 6
    Table of Contents Furthermore, in some cases, you can identify forward-looking statements by terminology such as may, will, could, should, expect, plan, intend, anticipate, believe, estimate, predict, potential or continue, the negative of such terms or other comparable terminology. These statements...

  • Page 7
    ... part of our Website an online auctions business-a marketplace for the buying and selling of goods and services-and 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. In August 2010...

  • Page 8
    ... future. Other businesses We operate an online auction service, car listing service, and real estate listing service as part of our Website. Our auction service allows sellers to list items for sale, buyers to bid on items of interest, and users to browse through listed items online. We record...

  • Page 9
    ..., Cars, Real Estate, and Community. The Shopping section is organized into 19 main departments: Home & Garden, Furniture, Bedding & Bath, Clothing & Shoes, Electronics, Jewelry, Watches, Sports and Outdoors, Books Media Music & Games, Luggage, Health & Beauty, Baby, Crafts & Sewing, Office, Gifts...

  • Page 10
    ...campaigns internally. Customer Service We are committed to providing superior customer service. We staff our customer service department with dedicated in-house and outsourced professionals who respond to phone, instant online chat and e-mail inquiries on products, ordering, shipping status, returns...

  • Page 11
    ... our annual revenue during the fourth quarter of 2010, 2009, and 2008, respectively. Financial Information about Geographic Areas See Item 15 of Part IV, "Financial Statements"-Note 23-"Business Segments" for more information. Intellectual Property We regard our domain names and similar intellectual...

  • Page 12
    ... or actions, consumer protection, employment, intellectual property and other commercial litigation related to the conduct of our business. We also prosecute lawsuits to enforce our legal rights. Such litigation could be costly and time consuming and could divert our management and key personnel...

  • Page 13
    ... 42 Senior Vice President, Marketing and Customer Care Stephen P. Tryon 49 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 14
    ... as Vice President, Strategy/Market Development/Sales for HD Supply, Inc., a privately-held wholesale distribution company based in Atlanta, Georgia. From December 1998 to August 2007, Mr. Chesnut served in a variety of capacities for The Home Depot or its subsidiaries, including Director, Business...

  • Page 15
    ...laws and regulations could cover issues such as user privacy, behavioral advertising, auto-renewability of contract, freedom of expression, pricing, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of...

  • Page 16
    ... our customer service capabilities to better serve our customers' needs; expand or modify our product offerings; expand warehouse and office space; increase our general and administrative functions to support our operations and activities; and maintain or increase our sales, branding and marketing...

  • Page 17
    ... and other new requirements may increase our costs and require additional management time and resources. We may need to implement additional finance and accounting systems, procedures and controls to satisfy our reporting requirements. If our internal control over financial reporting is determined...

  • Page 18
    ... 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 and services. In...

  • Page 19
    ... part of our customers would be difficult and costly to reestablish. As such, any issue regarding the safety of any items we sell, regardless of the cause, could adversely affect our financial performance. We depend upon third-party delivery services to deliver products to our customers on a timely...

  • Page 20
    ... credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, could have a material adverse effect on our business, prospects, financial condition and results of operations. A significant number of merchandise returns could...

  • Page 21
    ... 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, we accept returns of products sold through our fulfillment...

  • Page 22
    ... key employees for any reason, including without limitation, illness or call to military service, or loss to competitors as a result of compensation differentials or other reasons, could harm our business, prospects, financial condition and results of operations. We do not have employment agreements...

  • Page 23
    ... terms. Our success depends on our ability to attract and retain customers on cost-effective terms. We have relationships with online services, search engines, affiliate marketing websites, directories and other website and e-commerce businesses to provide content, advertising banners and other...

  • Page 24
    ..., Inc., Sears Holding Corporation, Target Corporation, Best Buy Co., Inc., and Barnes and Noble, Inc., all of which also have an online presence. We also compete with liquidation "brokers" and retailers and online marketplaces such as eBay, Inc. We expect the online liquidation services market to...

  • Page 25
    ... operating margins, loss of market share and a diminished brand franchise. We cannot provide assurance that we will be able to compete successfully against current or future competitors. Our operating results depend on our Website, network infrastructure and transaction-processing systems. Capacity...

  • Page 26
    ..., our business, prospects, financial condition and results of operations could be harmed. Our success, and in particular, our ability to successfully receive and fulfill orders and provide high-quality customer service, largely depends on the efficient and uninterrupted operation of our computer and...

  • Page 27
    ... our applications will be successful or that we will be able to secure significant protection for our service marks or trademarks in the United States or elsewhere as we expand internationally. Our competitors or others could adopt product or service marks similar to our marks, or try to prevent us...

  • Page 28
    ... in 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...

  • Page 29
    ... 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 30
    ...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 made public statements...

  • Page 31
    ... 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 on our auction site...

  • Page 32
    ...convicted for engaging in fraudulent 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...

  • Page 33
    ...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 34
    Table of Contents Fraudulent activities using our car and real estate listing sites and disputes between users of our car and real estate listing sites may harm our business. We are aware that other companies operating online car and real estate listing services have periodically received ...

  • Page 35
    ... credit card fraud, our liability for these transactions could harm our business, prospects, financial condition and results of operation. Further, to the extent that our efforts to prevent fraudulent orders result in our inadvertent refusal to fill legitimate orders, we would lose the benefit...

  • Page 36
    ... increase state revenues. States may increase sales and use tax rates, create new tax laws covering previously untaxed activities, or increase existing licenses or create new fees all of which may directly or indirectly harm our business. Similarly, administrative agencies and executive agencies may...

  • Page 37
    ... and personal information from users, which could be costly or harm our marketing efforts, and could require us to implement new and potentially costly processes, procedures and/or protective measures. Risks Relating to the Securities Markets and Ownership of Our Securities The price of our...

  • Page 38
    ... 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 39
    ... New York, Citigroup Inc., Credit Suisse (USA) Inc., Deutsche Bank Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., and UBS Financial Services, Inc., and have settled the case with respect to all defendants except Goldman Sachs Group, Inc., Goldman Sachs & Co., Goldman Sachs Execution...

  • Page 40
    ... short selling is the practice by which short sellers place large short sell orders for shares without first borrowing the shares to be sold, or without having first adequately located such shares and arranged for a firm contract to borrow such shares prior to the delivery date set to close the sale...

  • Page 41
    ... about our sales returns allowance remain unresolved at the date of this filing. We continue to work with the staff to address their open comments. ITEM 2. PROPERTIES Corporate office space We lease approximately 128,000 square feet in the Old Mill Corporate Center III in Salt Lake City, Utah for...

  • Page 42
    ...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 High Low Year Ended December 31, 2010...

  • Page 43
    ... cumulative total stockholder return, calculated on a dividend reinvested basis, from the market closing price on December 31, 2005 through December 31, 2010 for Overstock.com, Inc., NASDAQ Market Index-U.S. ("NASDAQ Market Index"), the Hemscott Internet Software and Services Index ("Hemscott Group...

  • Page 44
    ... the Overstock.com, Inc. Employee Benefits Committee (the "Committee") relating to the 401(k) plan. We entered into the Tolling Agreement in order to preserve certain rights, if any, of plan participants who acquired shares of Overstock common stock in the plan between July 1, 2008 and June 30, 2009...

  • Page 45
    ... Dollar Total Number of Value) Shares of Shares (or Units) (a) (b) (or Units) that Total Number Average Purchased as May Yet Be of Shares Price Paid Part of Publicly Purchased (or Units) per Share or Announced Plans Under the Plans Purchased Unit or Programs or Programs October 1, 2010 to October...

  • Page 46
    ...respectively. The following is a summary of restricted stock unit activity (amounts in thousands, except per share data): Units 2010 Weighted Average Grant Date Fair Value Units 2009 Weighted Average Grant Date Fair Value Units 2008 Weighted Average Grant Date Fair Value Outstanding- 640 $ 11...

  • Page 47
    ... 2010 2009 2008 2007 (in thousands, except per share data) 2006 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 48
    ... future operating performance (see Item 15 of Part IV, "Financial Statements"-Note 3-"Restructuring Expense"). As part of the program to reduce our expense structure and sell non-core businesses, we decided during the fourth quarter of 2006 to sell our travel subsidiary ("OTravel"). As a result...

  • Page 49
    ... adequacy of our customer service capabilities; our expectations regarding the adequacy of our office and warehouse facilities; our expectations regarding our auctions service, our international sales efforts, our real estate listing service, our car listing service and our community site, and the...

  • Page 50
    ... part of our Website an online auctions business-a marketplace for the buying and selling of goods and services-and 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. In August 2010...

  • Page 51
    ... future. Other businesses We operate an online auction service, car listing service, and real estate listing service as part of our Website. Our auction service allows sellers to list items for sale, buyers to bid on items of interest, and users to browse through listed items online. We record...

  • Page 52
    ... auctions, for sale by owner listings, broker/agent listings and numerous aggregated classified ad listings. We also earn advertisement revenue derived from our cars and real estate listing businesses. Revenue from the auctions, cars and real estate businesses is included in the fulfillment partner...

  • Page 53
    ... Auctions tab of our Website, advertisement revenue derived from our cars and real estate listing business, and from advertising on our shopping pages. We have organized our operations into two principal segments based on the primary source of revenue: direct revenue and fulfillment partner revenue...

  • Page 54
    ... which fulfillment partners ship directly to consumers and businesses from warehouses maintained by our fulfillment partners. We operate an online auction service as a part of our Website. The Auctions business allows sellers to list items for sale, buyers to bid on items of interest, and users to...

  • Page 55
    ... of a product defect or our or our fulfillment partners' error and our customer initiates a return of an unopened item within 30 days of delivery, except for computers and electronics, we refund the full cost of the merchandise minus the original shipping charge and return shipping fees. However...

  • Page 56
    ...000 at December 31, 2010 and 2009, respectively. Allowance for doubtful accounts From time to time, we grant credit to certain of our business customers on normal credit terms (typically 30 days). We perform credit evaluations of our customers' financial condition and payment history and maintain an...

  • Page 57
    ...other amount within the range, the minimum amount in the range is accrued. We expense legal fees as incurred. Accounting pronouncements issued not yet adopted See Item 15 of Part IV, "Financial Statements"-Note 2-"Accounting Policies" subheading "Accounting Pronouncements Issued Not Yet Adopted." 51

  • Page 58
    ... management, and general improvement in Internet commerce. Revenues in 2010 increased by 24% compared to 2009. Our pricing and marketing initiatives drove improvement in several key components of revenue growth, including new customer growth, visits to our Website, conversion and average order...

  • Page 59
    ... margin. This was offset somewhat by supply chain efficiencies resulting from initiatives focused on returns and fulfillment, and from a favorable sales mix shift this year away from BMMG and consumer electronics into home and garden products. Sales and marketing expense as a percentage of revenue...

  • Page 60
    ... of total revenue for 2010, 2009 and 2008: Year ended December 31 2010 2009 (as a percentage of total revenue) 2008 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...

  • Page 61
    ... 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; and operational and fulfillment costs. Gross margins for...

  • Page 62
    ... effectively manage customer service costs and credit card fees. There have been no significant changes in our fulfillment costs during the year ended December 31, 2010. See "Gross profit" above for additional discussion. Operating expenses Sales and marketing expenses We advertise through a number...

  • Page 63
    ... marketing plan. Technology expenses We seek to efficiently invest in technology, including web services, customer support solutions, website search, and expansion of new and existing product categories, as well as continuing to enhance the customer experience, improving our process efficiency...

  • Page 64
    ... categories on the consolidated statements of operations as follows (in thousands): Year ended December 31, 2010 2009 Cost of goods sold-direct Technology General and administrative Total depreciation and amortization, including internal-use software and website development Non-operating income...

  • Page 65
    ... of 2008, in spite of the weakness in the overall US economy. Our business model continued 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 generated over 80% of our revenue. Our...

  • Page 66
    ...our Website. Our BMMG and Computers & Electronics categories accounted for a smaller percentage of our revenues compared to last year. These products typically generate lower gross profits compared to more profitable categories such as Home and Garden. As a result, our overall gross margin benefited...

  • Page 67
    ...variable handling costs (excluding packaging costs), as well as credit card fees and customer service costs, all of which we include as costs in calculating gross margin. We believe that some companies in our industry, including some of our competitors, account for fulfillment costs within operating...

  • Page 68
    ... such as our ability to manage costs at our warehouses, significant changes in the number of units received and fulfilled, the extent to which we use third party fulfillment services and warehouses, and our ability to effectively manage customer service costs and credit card fees. There have been no...

  • Page 69
    ... LLC. Icent LLC's chief executive officer is James V. Joyce, who resigned from his position as a member of the Board of Directors on April 1, 2009. The increase in G&A expenses is also related to additional facilities costs relating to the lease of a new customer service center and an increase in...

  • Page 70
    ...downturn on the travel industry that began during the latter part of 2008. Income taxes Our provision for income taxes for the year ended December 31, 2009 of $257,000 is for federal alternative minimum taxes and state taxes. As of December 31, 2009 and 2008, we had net operating loss carry forwards...

  • Page 71
    ...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 72
    ...Cash 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, 2010 and 2009, investing activities resulted in net...

  • Page 73
    ... the Overstock.com, Inc. Employee Benefits Committee (the "Committee") relating to the 401(k) plan. We entered into the Tolling Agreement in order to preserve certain rights, if any, of plan participants who acquired shares of Overstock common stock in the plan between July 1, 2008 and June 30, 2009...

  • Page 74
    ... amount and period of payment. For further information regarding the application of ASC 740-10-5, see the information set forth under Item 15 of Part IV, "Financial Statements-Note 21-Income Taxes," contained in the "Notes to Consolidated Financial Statements" of this Annual Report on Form 10-K. 68

  • Page 75
    ... Agreement replaced the former credit agreement with Wells Fargo. The Financing Agreement provides for revolving loans and other financial accommodations to or for our benefit of (i) up to $10 million for cashcollateralized advances, and (ii) up to $10 million for advances supported by the Company...

  • Page 76
    ... termination date. No amounts were outstanding under the Financing Agreement at December 31, 2010 and 2009, and letters of credit totaling $2.4 million and $2.6 million, respectively, were issued on our behalf and collateralized by compensating cash balances held at U.S. Bank, which are included...

  • Page 77
    ...As of December 31, 2010, we had $30.0 million in compensating cash balances held at U.S. Bank. U.S. Bank Purchasing Card Agreement We have a commercial purchasing card agreement (the "Purchasing Card") with U.S. Bank. We use the Purchasing Card for business purpose purchasing and must pay it in full...

  • Page 78
    ... as a percentage of revenues. 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...

  • Page 79
    Table of Contents For further details on Contribution, see the calculation of this non-GAAP measure below (in thousands): Year ended December 31, 2010 2009 2008 Total revenue Cost of goods sold Gross profit Less: Sales and marketing expense Contribution Contribution margin... business and changes in...

  • Page 80
    ..., 2010 was $33.2 million. The fair value of the convertible senior notes was derived using a convertible pricing model with observable market inputs, which include stock price, dividend payments, borrowing costs, equity volatility, interest rates and interest spread. ITEM 8. FINANCIAL STATEMENTS AND...

  • Page 81
    ..., 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 effective as of December 31, 2010, the end of the period covered by this Annual Report on Form...

  • Page 82
    ... Control over Financial Reporting (Item 9A(b)). 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 Oversight Board (United States). Those...

  • Page 83
    ... control over financial reporting: • Additional improvements to our information systems recommended by a consulting firm we engaged during the second quarter of 2010, as follows, 1) implementing a post-deployment review process of information system changes, and 2) enhanced the review process to...

  • Page 84
    ... Part I "Business-Executive Officers." Information required by Item 10 of Part III regarding our Directors and any material changes to the process by which security holders may recommend nominees to the Board of Directors will be included in our definitive proxy statement for our 2011 annual meeting...

  • Page 85
    ... PART IV ITEM 15. 1. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Financial Statements INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 2. Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements...

  • Page 86
    ....com, Inc.'s definitive proxy statement (File No. 000-49799) filed with the SEC on March 28, 2008. 10.19 Form of Restricted Stock Unit Grant Notice and Restricted Stock Agreement under the 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to our Report on Form 8-K (File No...

  • Page 87
    ...(c) Summary of unwritten compensation arrangements with Directors. 10.30 Master Lease Agreement and Financial Covenants Rider with U.S. Bancorp Equipment Finance, Inc.- Technology Finance Group dated as of September 17, 2010 (incorporated by reference to exhibit 10.1 to our Report on Form 8-K (File...

  • Page 88
    ... Executive Officer (Principal Executive Officer), Chairman of the Board February 28, 2011 /s/ STEPHEN J. CHESNUT Senior Vice President, Finance and Risk Management (Principal Financial February 28, 2011 Officer and Principal Accounting Officer) Stephen J. Chesnut /s/ ALLISON H. ABRAHAM Director...

  • Page 89
    ...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 Comprehensive Income (Loss...

  • Page 90
    ... issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2011 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. /s/ KPMG LLP Salt Lake City, Utah February 28, 2011...

  • Page 91
    ... opinion. As described in Note 3 to the consolidated financial statements included in the annual report on Form 10-K for the year ended December 31, 2009, the financial statements for 2008 have been restated for the correction of errors. /s/ PricewaterhouseCoopers LLP Salt Lake City, Utah February...

  • Page 92
    Table of Contents Overstock.com, Inc. Consolidated Balance Sheets (in thousands) December 31, 2010 December 31, 2009 Assets Current assets: Cash and cash equivalents Restricted cash Accounts receivable, net Inventories, net Prepaid inventories, net Prepaids and other assets Total current assets ...

  • Page 93
    ...Consolidated Statements of Operations (in thousands, except per share data) Year ended December 31 2010 2009 2008 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: Sales and marketing...

  • Page 94
    ... Unrealized gain on marketable - securities Cumulative translation - adjustment Total comprehensive - loss Balances at December 31, 25,438 2008 Stock-based compensation to employees - and directors Stock-based compensation to consultants in exchange - for services Common stock issued upon vesting of...

  • Page 95
    ...compensation to employees - and directors Common stock issued upon vesting of restricted 185 stock Purchase of - treasury stock Treasury stock issued...- $ - - - (112) 13,889 13,889 2 $ 349,747 $ (242,327) 2,862 $(76,764) - $ 30,658 See accompanying notes to consolidated financial statements. F-6

  • Page 96
    ... 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 relating to performance share plan Amortization...

  • Page 97
    ... Statements of Cash Flows (Continued) (in thousands) Year ended December 31 2010 2009 2008 Cash flows from financing activities: Payments on capital lease obligations Drawdowns on line of credit Payments on line of credit Capitalized financing costs Proceeds from finance obligations Payments...

  • Page 98
    ... part of our Website an online auctions business-a marketplace for the buying and selling of goods and services-and 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. In August 2010...

  • Page 99
    .... Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) Restricted cash We consider cash that is legally restricted and cash that is held as a compensating balance for letter of credit arrangements as restricted cash. At December 31, 2010 and 2009, restricted cash...

  • Page 100
    ... model with observable market inputs, which include stock price, dividend payments, borrowing costs, equity volatility, interest rates and interest spread. Restricted investments In December 2009, we implemented a Non Qualified Deferred Compensation Plan (the "NQDC Plan") for senior management...

  • Page 101
    ...Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) Allowance for doubtful accounts From time to time, we grant credit to some of our business customers on normal credit terms (typically 30 days). We perform credit evaluations of our customers' financial condition and payment history...

  • Page 102
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) Fixed assets Fixed assets, which include assets such as furniture and fixtures, technology infrastructure, internal-use software and website development, are recorded at ...

  • Page 103
    ... Revenue recognition We derive revenue primarily from two sources: 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, advertisement revenue derived from our cars and real estate...

  • Page 104
    ... our Website and shipped by fulfillment partners directly to consumers and businesses from warehouses maintained by the fulfillment partners. We operate an online auction service on our Website. The Auctions tab allows sellers to list items for sale, buyers to bid on items of interest, and users to...

  • Page 105
    ... to contact sellers for further information and negotiations on the purchase of an advertised vehicle. Revenue from the cars listing business is included in the fulfillment partner segment on a net basis. We operate an online site for listing real estate for sale as a part of our Website. The real...

  • Page 106
    ... use to make purchases on our Website (see "Club O loyalty program" above for more information). We launched this co-branded card in September 2010. New account fees are recognized as revenue on a straight-line basis over the estimated life of the credit card relationship. Credit card usage fees are...

  • Page 107
    ... of a product defect or our or our fulfillment partners error and the customer initiates a return of an unopened item within 30 days of delivery, except for computers and electronics, we refund the full cost of the merchandise minus the original shipping charge and return shipping fees. However...

  • Page 108
    ... 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...

  • Page 109
    ... located in Mexico 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 during the period. Diluted earnings (loss) per share...

  • Page 110
    ...to 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 2010 2009 2008 $ 13,889...

  • Page 111
    .... We had no marketable securities at December 31, 2010 and 2009. The components of realized losses on sales and impairment of marketable securities for the years ended December 31, 2010, 2009 and 2008 were (in thousands): December 31, 2010 2009 2008 Net loss on sales of marketable securities F-22...

  • Page 112
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 5. COMPREHENSIVE INCOME (LOSS) Our comprehensive income (loss) is as follows (in thousands): Year ended December 31, 2010 2009 2008 Net income (loss) Net unrealized gain on marketable securities ...

  • Page 113
    ... assets consist of the following (in thousands): $ $ 5,446 $ 2,722 1,826 1,657 11,651 $ 6,628 2,255 1,392 - 10,275 December 31, 2010 2009 Computer hardware and software, including internal-use software and website development Furniture and equipment Leasehold improvements Less: accumulated...

  • Page 114
    ... 31, 2010 2009 Allowance for returns Accrued compensation and other related costs Accounts payable accrual Accrued freight Accrued marketing expenses Accrued professional expenses Facility lease accruals Accrued taxes Credit card processing fee accrual Inventory received but not invoiced Short term...

  • Page 115
    ... the WFRF Agreement. Wells Fargo Commercial Purchasing Card Agreement We had a commercial purchasing card agreement (the "Prior Purchasing Card") with Wells Fargo that expired on January 1, 2010. We used the Prior Purchasing Card for business purpose purchasing and were required to pay it in...

  • Page 116
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 13. BORROWINGS (Continued) Base (as defined in the Financing Agreement). The Financing Agreement and the credit facility terminate on October 2, 2011. Subject to certain interest rate floors and other ...

  • Page 117
    .... As of December 31, 2010, we had $30.0 million in compensating cash balances held at U.S. Bank. Future principal payments of finance obligations are as follows (in thousands): Payments due by period 2011 2012 2013 2014 2015 U.S. Bank Commercial Purchasing Card Agreement $ $ 3,922 4,163 4,431...

  • Page 118
    ... the years ended December 31, 2010, 2009 and 2008, respectively. Interest on the Senior Notes is payable semi-annually on June 1 and December 1 of each year. The Senior Notes mature on December 1, 2011 and are unsecured and rank equally in right of payment with all existing and future unsecured...

  • Page 119
    ... covenants, including making principal and interest payments when due, maintaining our corporate existence and properties, and paying taxes and other claims in a timely manner. Wilmington Trust Company currently serves as Trustee under the indenture. Under our repurchase program discussed below...

  • Page 120
    ... 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 121
    ... others similarly in a class action suit, alleging violations of the Electronic Communications Privacy Act, Computer Fraud and Abuse Act, Video Privacy Protection Act, and California's Consumer Legal Remedies Act and Computer Crime Law. The complaint relates to our use of a product known as Facebook...

  • Page 122
    ... a "restocking" charge on her return of a vacuum cleaner. We filed a motion to dismiss based upon assertions that our agreement with our customers requires all such actions to be arbitrated in Salt Lake City, Utah. Alternatively, we asked that the case be transferred to the United States District...

  • Page 123
    ... Alcatel-Lucent USA, Inc. filed suit against us and 12 other defendants in the United States District Court in the Eastern District of Texas. We are alleged to have infringed three Internet-related and search software patents. We believe that certain third party vendors of products and services sold...

  • Page 124
    ... range of loss can be made. We intend to vigorously defend this action and pursue our indemnification rights with our vendors. On September 10, 2010 Guildersleeve Holdings AG, LLC filed suit against us and 19 other defendants in the United States District Court in the Central District of California...

  • Page 125
    ... the Overstock.com, Inc. Employee Benefits Committee (the "Committee") relating to the 401(k) plan. We entered into the Tolling Agreement in order to preserve certain rights, if any, of plan participants who acquired shares of Overstock common stock in the plan between July 1, 2008 and June 30, 2009...

  • Page 126
    ...tax withholdings owed by the grantee of the restricted stock award grant. None of these shares were repurchased in the open market. On February 1, 2011 our Board of Directors... 31, 2010 and 2009. During the years ended December 31, 2010, 2009 and 2008, we recorded stock-based compensation related to...

  • Page 127
    ... Plan. We settle stock option exercises with newly issued common shares. The following is a summary of stock option activity (in thousands, except per share data): 2010 Weighted Average Exercise Shares Price 2009 Weighted Average Exercise Shares Price 2008 Weighted Average Exercise Shares Price...

  • Page 128
    ... Financial Statements (Continued) 18. STOCK-BASED AWARDS (Continued) The following table summarizes information about stock options as of December 31, 2010 (in thousands, except per share data): Range of Exercise Prices Options Outstanding Options Exercisable Weighted Average Weighted Average...

  • Page 129
    ... 22, 2011, we granted 225,000 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. The Plan provided...

  • Page 130
    ... Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 19. EMPLOYEE RETIREMENT PLAN (Continued) In December 2009, we implemented a Non Qualified Deferred Compensation plan for senior management. The plan allows eligible members of senior management to defer their receipt of...

  • Page 131
    ... history of losses, a valuation allowance has been provided for the full amount of our net deferred tax assets as we believe that it is more likely than not that these benefits will not be realized. We recorded a tax provision of $359,000 for the year ended December 31, 2010, for federal alternative...

  • Page 132
    ...differs from the amount computed by applying the U.S. federal income tax rate of 35% to loss before income taxes for the following reasons (in thousands): Year ended December 31, 2010 2009 2008 U.S. federal income tax (provision) benefit at statutory rate State income tax benefit (expense), net of...

  • Page 133
    ... primarily on gross profit. The table below summarizes information about reportable segments for the years ended December 31, 2010, 2009 and 2008 (in thousands): Direct Year ended December 31, Fulfillment partner Total 2010 Revenue, net Cost of goods sold Gross profit Operating expenses Other...

  • Page 134
    ... sales and are earned from selling the merchandise of third parties over our Website. Costs for this segment include product costs, outbound freight and fulfillment costs, credit card fees and customer service costs. Assets have not been allocated between the segments for our internal management...

  • Page 135
    ... 30, September 30, December 31, 2010 2010 2010 2010 2009 2009 2009 2009 (in thousands, except per share data) Consolidated Statement of Operations Data: Revenue, net $ 50,568 $ 42,382 Direct Fulfillment 213,762 188,871 partner Total net 264,330 231,253 revenue Cost of goods sold 43,584 37,434 Direct...

  • Page 136
    Net income (loss) per common share-diluted: Net income (loss) per share- $ 0.16 $ (0.06) diluted Weighted average common shares outstanding- 23,243 23,013 diluted $ (0.15) $ 0.63 $ (0.17)$ 0.01 $ (0.06) $ 0.55 23,060 23,466 22,803 23,049 22,824 23,272 F-46

  • Page 137
    Table of Contents Schedule II Valuation and Qualifying Accounts (dollars in thousands) Balance at Beginning of Year Charged to Expense Deductions Balance at End of Year Year ended December 31, 2010 Deferred tax valuation allowance Allowance for sales returns Allowance for doubtful accounts ...

  • Page 138

  • Page 139
    ...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 140
    QuickLinks Exhibit 10.29

  • Page 141
    QuickLinks -- Click here to rapidly navigate through this document Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Name Jurisdiction of Formation Trade Names Overstock.com Real Estate LLC Overstock.com Services, Inc. Utah Utah Overstock.com Real Estate Overstock.com Services

  • Page 142
    QuickLinks Exhibit 21 SUBSIDIARIES OF THE REGISTRANT

  • Page 143
    ... except for Note 3, for which the date is March 31, 2010 relating to the financial statements for the year ended December 31, 2008 and financial statement schedule for the year ended December 31, 2008, which appears in this Form 10-K. /s/ PricewaterhouseCoopers Salt Lake City, Utah February 28, 2011

  • Page 144
    QuickLinks Exhibit 23.1

  • Page 145
    ... 31, 2010, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2010, which reports appear in the December 31, 2010 annual report on Form 10-K of Overstock.com, Inc. /s/ KPMG LLP Salt Lake City, UT February 28, 2011

  • Page 146
    QuickLinks Exhibit 23.2

  • Page 147
    ...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: February 28, 2011 /s/ PATRICK M. BYRNE Patrick M. Byrne Chief Executive Officer...

  • Page 148
    QuickLinks Exhibit 31.1

  • Page 149
    ...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: February 28, 2011 /s/ STEPHEN J. CHESNUT Stephen J. Chesnut Senior Vice President, Finance...

  • Page 150
    QuickLinks Exhibit 31.2

  • Page 151
    ...applicable, and that information contained in such Report fairly presents in all material respects the financial condition and results of operations of Overstock.com, Inc. Date: February 28, 2011 /s/ PATRICK M. BYRNE Name: Title: Patrick M. Byrne Chief Executive Officer (principal executive officer...

  • Page 152
    QuickLinks Exhibit 32.1

  • Page 153
    ... that information contained in such Report fairly presents in all material respects the financial condition and results of operations of Overstock.com, Inc. Date: February 28, 2011 /s/ STEPHEN J. CHESNUT Name: Stephen J. Chesnut Title: Senior Vice President, Finance and Risk Management (principal...

  • Page 154
    QuickLinks Exhibit 32.2