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OVERSTOCK.COM, INC (OSTK)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 03/02/2012
Filed Period 12/31/2011

Table of contents

  • Page 1
    OVERSTOCK.COM, INC (OSTK) 10-K Annual report pursuant to section 13 and 15(d) Filed on 03/02/2012 Filed Period 12/31/2011

  • Page 2
    ... of 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...

  • Page 3
    ... (June 30, 2011), was approximately $162.4 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
    ... Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Part III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item...

  • Page 5
    ... fact, including, without limitation, all statements regarding the anticipated benefits and risks of our business and plans; our ability to attract and retain customers in a cost-efficient manner; the effectiveness of our marketing; our future operating and financial results; the competition...

  • Page 6
    ... Actual events or results may differ materially. In evaluating these statements, you should specifically consider the risks outlined in this Annual Report on Form 10-K for the year ended December 31, 2011, including those described in Item 1A under the caption "Risk Factors." These factors may cause...

  • Page 7
    ... can purchase cars, insurance and travel products and services. We sell advertising. We also sell hundreds of thousands of best seller and current run books, magazines, CDs, DVDs and video games ("BMMG"). We sell these products and services through our Internet websites located at www.overstock.com...

  • Page 8
    ... For sales in our fulfillment partner business, we generally receive payments from our customers before our payments to our suppliers are due. International business We began selling products through our Website to customers outside the United States in late August 2008. As of December 31, 2011, we...

  • Page 9
    ...sold items returned from our shopping business through our auction service, and for these sales, we recorded the revenue on a gross basis. Revenue from the auctions is included in the fulfillment partner segment. Prior to June 2011, we operated an online site for listing real estate for sale as part...

  • Page 10
    ... to Business. The Shopping section is organized into 18 main departments: Home & Garden, Furniture, Bedding & Bath, Clothing & Shoes, Electronics, Jewelry, Watches, Sports and Outdoors, Books Media Music & Games, Luggage, Worldstock Fair Trade, Health & Beauty, Baby, Crafts & Sewing, Office, Gifts...

  • Page 11
    ...barriers to entry. We believe that competition in this industry is based predominantly on price; product quality and selection; shopping convenience; website organization and load speed; order processing and fulfillment; order delivery time; customer service; and brand recognition. We compete with...

  • Page 12
    ... lawsuits to enforce our legal rights. Such litigation could be costly and time consuming and could divert our management and key personnel from our business operations. The uncertainty of litigation increases these risks. In connection with such litigation, we may be subject to significant damages...

  • Page 13
    ... business. In many states, there is currently great uncertainty whether or how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet and commercial online services. These issues may take years to resolve. In addition, new...

  • Page 14
    ...Customer and Partner Care. Ms. Simon has also served as a member of our Board of Directors since May 2011. Ms. Simon previously served as our Senior Vice President, Marketing, Vice President, BMMG; Travel and Off-Line Advertising; Chief of Staff and as our Director of B2B. Prior to joining Overstock...

  • Page 15
    ... regulations cover issues such as user privacy, behavioral advertising, autorenewability of contract, freedom of expression, pricing, fraud, mandated disclosures concerning foreign manufacturer working conditions, quality of products and services, taxation, advertising, intellectual property rights...

  • Page 16
    ..., also impact our customers' ability to obtain consumer credit. Other factors, including consumer confidence, employment levels, interest rates, tax rates, consumer debt levels, and fuel and energy costs could reduce consumer spending or change consumer purchasing habits. A continued slowdown...

  • Page 17
    ... for returns, credit card chargebacks, doubtful accounts and obsolete and damaged inventory), internal use software and website development (acquired and developed internally), accounting for income taxes, valuation of long-lived and intangible assets and goodwill, stock-based compensation, and...

  • 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
    ... foreign suppliers are located, the financial instability of suppliers, suppliers' failure to meet our supplier standards, labor problems experienced by our suppliers, the availability of raw materials to suppliers, merchandise quality issues, currency exchange rates, transport availability and cost...

  • Page 20
    ... tracking; delays in order processing and product delivery; increased delivery costs, resulting in reduced profit margins; and reduced shipment quality, which may result in delivery of damaged products. Financial performance concerns may cause fulfillment partners or other suppliers to limit or...

  • Page 21
    ..., 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 partners...

  • Page 22
    ... 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 23
    ... in a cost-effective or timely manner or that our efforts to expand will be successful. Furthermore, any new business or website we launch that is not favorably received by consumers could damage our reputation or the Overstock.com brand. We may expand the number of categories of products we carry...

  • Page 24
    ... advertising services for other online or traditional retailers and merchandise liquidators. As a result, these parties may be reluctant to enter into or maintain relationships with us. Failure to achieve sufficient traffic or generate sufficient revenue from purchases originating from third parties...

  • Page 25
    ... new lines of businesses such as third-party logistics, or discount brick and mortar retail, we would be competing with large established businesses such as APL Logistics and Ross Stores, Inc. In the past we have entered the online auctions, car listing and real estate listing businesses, travel...

  • Page 26
    ... of customer service, additional expense, impaired quality and speed of order fulfillment or delays in reporting accurate financial information. If the facility where substantially all of our computer and communications hardware is located fails, our business, prospects, financial condition and...

  • Page 27
    ...to protect our software and other proprietary intellectual property rights or to develop technologies that are as good as our competitors' could put us at a disadvantage to our competitors. In addition, the failure of the third parties whose products we offer for sale on our Website to protect their...

  • Page 28
    ... or not, could be costly, time-consuming, cause service delays, divert our management and key personnel from our business operations, require expensive or unwanted changes in our methods of doing business or require us to enter into costly royalty or licensing agreements, if available. As a result...

  • Page 29
    ... our privacy practices. We rely on encryption and authentication technology licensed 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...

  • Page 30
    ... notice covers documents related to the restatements and also to our billings to our partners in the fourth quarter of 2008 and related collections, and our accounting for and implementation of software relating to our accounting for customer refunds and credits, including offsets to partners, and...

  • Page 31
    ... to time be required to make changes in our service that may increase our costs, reduce our revenues, cause us to prohibit certain listing or advertising practices, or make other changes that may adversely affect our car listing service. Current and future laws could affect our car listing business...

  • Page 32
    ... to legal actions against the listing service for damages because of user conduct. We may encounter similar legal actions in connection with our cars listing service, which may harm our business or reputation among consumers. Our insurance coverage and indemnity rights may not adequately protect us...

  • Page 33
    ...laws, and we may from time to time be required to make changes in our businesses that may increase our costs, reduce our revenues, cause us to prohibit certain listing or advertising practices, or make other changes that may adversely affect our insurance business site. Current and future laws could...

  • Page 34
    ..., may harm our business. In addition, any negative publicity we receive regarding any such transactions or allegations may damage our reputation, our ability to attract new customers to our main shopping site, and the O.co and Overstock.com brand names generally. Our success is tied to the...

  • Page 35
    ...using payment cards to fund their payments or pay their fees. If we were unable to accept payment cards, our business would be seriously damaged. Our servers are also vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, including "denial-of-service" type attacks...

  • Page 36
    ... to pay a use tax on their purchases. In Colorado, the law requires vendors to notify Colorado purchasers annually by U.S. mail of all their annual purchases, and provide to the State of Colorado the same information in the first quarter of the year for previous year's purchases. On January 26, 2011...

  • Page 37
    ... 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. The price of our securities may be volatile and you may lose all or a part of your investment. The market price...

  • Page 38
    ... and future marketing campaigns are successful; price competition that results in lower profit margins or losses; the amount and timing of operating costs and capital expenditures relating to the expansion of our business operations and infrastructure; the amount and timing of our purchases of...

  • Page 39
    ... below expectations, causing the market price of our securities to decline. We generally have payment terms with our fulfillment partners that extend beyond the amount of time necessary to collect proceeds from our customers. As a result of holiday sales, at December 31 of each year, our cash, cash...

  • Page 40
    ... of our company. The price of our stock may be vulnerable to manipulation. We 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 41
    ...next twelve months, subject to seasonal requirements for additional warehouse and customer service space during the fourth quarter. ITEM 3. LEGAL PROCEEDINGS The information set forth under Item 15 of Part IV, "Financial Statements-Note 13-Commitments and Contingencies, subheading Legal Proceedings...

  • 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, 2011...

  • Page 43
    ... the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual and legal restrictions and other factors the board deems relevant. Our Financing Agreement with U.S. Bank National Association prohibits dividend payments and other distributions...

  • Page 44
    ... to the table disclose the number of shares purchased other than pursuant to a publicly announced plan or program 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...

  • Page 45
    ...Plans generally expire at the end of ten years and vest on a straight line basis in accordance with a vesting schedule determined by our Board of Directors, usually over four years from the grant date. As of December 31, 2011, 1.0 million shares of stock based awards were available for future grants...

  • Page 46
    Table of Contents Restricted stock units vest over three years at 25% at the end of the first year, 25% at the end of the second year and 50% at the end of the third year. During the years ended December 31, 2011, 2010 and 2009, we recorded stock based compensation related to restricted stock units ...

  • Page 47
    ... Year ended December 31, 2011 2010 2009 2008 (in thousands, except per share data) 2007 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...

  • Page 48
    ... OTravel was $3.9 million for the year ended December 31, 2007 (including a goodwill impairment charge of $3.8 million). As of December 31, 2011 2010 2009 (in thousands) 2008 2007 Balance Sheet Data: Cash and cash equivalents Restricted cash Marketable securities Working capital Total assets Total...

  • Page 49
    ... fact, including, without limitation, all statements regarding the anticipated benefits and risks of our business and plans; our ability to attract and retain customers in a cost-efficient manner; the effectiveness of our marketing; our future operating and financial results; the competition...

  • Page 50
    ... can purchase cars, insurance and travel products and services. We sell advertising. We also sell hundreds of thousands of best seller and current run books, magazines, CDs, DVDs and video games ("BMMG"). We sell these products and services through our Internet websites located at www.overstock.com...

  • Page 51
    ... For sales in our fulfillment partner business, we generally receive payments from our customers before our payments to our suppliers are due. International business We began selling products through our Website to customers outside the United States in late August 2008. As of December 31, 2011, we...

  • Page 52
    ...sold items returned from our shopping business through our auction service, and for these sales, we recorded the revenue on a gross basis. Revenue from the auctions is included in the fulfillment partner segment. Prior to June 2011, we operated an online site for listing real estate for sale as part...

  • Page 53
    ... fulfillment partner revenue, including listing fees and commissions collected from products being listed and sold through the Auctions tab, which we removed from our site in July 2011, advertisement revenue derived from our real estate listing business, which we removed from our site in June 2011...

  • Page 54
    ... partner revenue is derived from merchandise sales through our Website which fulfillment partners ship directly to consumers and businesses from warehouses maintained by our fulfillment partners. We operate an online site for listing cars for sale as a part of our Website. The cars listing service...

  • Page 55
    ... basis. The revenue for the returned merchandise that we sold at auction was recorded on a gross basis. Revenue from the auctions business is included in the fulfillment partner segment. Prior to June 2011, we operated an online site for listing real estate for sale as a part of our Website. In June...

  • Page 56
    ... wrong product. If the return is not a result of a product defect or a fulfillment error and the customer initiates a return of an unopened item within 30 days of delivery, for most products we refund the full cost of the merchandise minus the original shipping charge and actual return shipping fees...

  • Page 57
    ... of our returns data used in the estimation process. In early 2009, we implemented initiatives to reduce overall return rates in several of our product categories. In September 2009, we entered into a new master supplier agreement with our fulfillment partners that provided financial incentives for...

  • Page 58
    ... the new cost basis of such products. Internal-use software and website development Included in fixed assets is the capitalized cost of internal-use software and website development, including software used to upgrade and enhance our Website and processes supporting our business. We capitalize costs...

  • Page 59
    ... this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. We expense legal fees as incurred. Accounting pronouncements issued not yet adopted See Item 15 of Part IV, "Financial Statements"-Note 2-"Accounting Policies" subheading "Accounting...

  • Page 60
    ... higher product costs of returned goods due to a sales mix shift to the home and garden category. Fulfillment partner gross margin declined by 50 basis points, largely due to competitive pricing initiatives. Sales and marketing expenses as a percentage of revenue increased by 30 basis points in 2011...

  • Page 61
    ... staff and contract labor positions, which will reduce annual compensation costs by approximately $8.5 million. The balance of our Management's Discussion and Analysis of Financial Condition and Results of Operations provides further information about the matters discussed above and other important...

  • Page 62
    ... of total revenue for 2011, 2010 and 2009: Year ended December 31 2011 2010 (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...

  • Page 63
    ... business; sales coupons and promotions; product mix of sales; and operational and fulfillment costs. The following table reflects our net revenues, cost of goods sold and gross profit for the year ended December 31, 2011 and 2010 (in thousands): Year ended December 31, 2011 2010 $ Change % Change...

  • Page 64
    ... and higher product costs from returned goods due to a sales mix shift to the home and garden category. The decrease in fulfillment partner gross margin for the year ended December 31, 2011 is primarily due to competitive pricing initiatives. The decrease in fulfillment partner gross margin for the...

  • Page 65
    ...third party fulfillment services and warehouses, and our ability to effectively manage customer service costs and credit card fees. There have been no significant changes in our fulfillment and related costs as a percentage of revenue during the year ended December 31, 2011. See "Gross profit" above...

  • Page 66
    ... invest in technology, including web services, customer support solutions and website search, and in expansion of new and existing product categories, and in investments in technology to enhance the customer experience, improve our process efficiency and support our logistics infrastructure. The...

  • Page 67
    ... statements of operations as follows (in thousands): Year ended December 31, 2011 2010 2009 $ 714 $ 1,179 $ 1,264 Cost of goods sold-direct 14,433 12,489 10,943 Technology 1,203 912 676 General and administrative Total depreciation and amortization, including internal-use software and website...

  • Page 68
    ... 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 69
    ... to changes and timing differences in inventory, accounts payable and accrued liabilities that were partially offset by changes in net income, depreciation and amortization, and gains on the early retirement of our Senior Notes. The balance of our Management's Discussion and Analysis of Financial...

  • Page 70
    ... table sets forth our results of operations expressed as a percentage of total revenue for 2010 and 2009: Year ended December 31 2010 2009 Revenue, net Direct Fulfillment partner Total net revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating...

  • Page 71
    ... 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. The following table reflects our net revenues, cost...

  • Page 72
    ... year ended December 31, 2010 is primarily due to pricing initiatives that were implemented beginning in the third quarter of 2009, partially offset by a shift in sales mix to higher margin products as well as lower returns-related costs. Gross profit for our fulfillment partner business increased...

  • Page 73
    ... 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 74
    ... 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 and supporting our logistics infrastructure. The following...

  • Page 75
    ... 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 76
    ... such financing can be obtained on satisfactory terms. Failure to generate sufficient revenues, profits or to raise additional capital could have a material adverse effect on our operations and on our ability to achieve our intended business objectives. Any projections of future cash needs and cash...

  • Page 77
    ...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, 2011 and 2010, investing activities resulted in net...

  • Page 78
    ...") with 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...

  • Page 79
    ... of the 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 20-Income Taxes," contained in the "Notes to Consolidated Financial Statements" of this Annual Report on Form 10...

  • Page 80
    ... or issue any new class of capital stock, (h) change our business objectives, purposes or operations in a manner which could reasonably be expected to have a material adverse effect, (i) change our fiscal year, (j) enter into transactions with affiliates, (k) sell assets except for the sale of...

  • Page 81
    ... outstanding, respectively. U.S. Bank Purchasing Card Agreement We have a commercial purchasing card (the "Purchasing Card") agreement with U.S. Bank. We use the Purchasing Card for business purpose purchasing and must pay it in full each month. At December 31, 2011, $3.4 million was outstanding...

  • Page 82
    ...on Contribution, see the calculation of this non-GAAP measure below (in thousands): Year ended December 31, 2011 2010 2009 Total revenue Cost of goods sold Gross profit Less: Sales and marketing expense Contribution Contribution margin Free Cash Flow $ $ 1,054,277 875,189 179,088 61,813 117,275...

  • Page 83
    ...as a complement to our entire consolidated statements of cash flows as calculated below (in thousands): Year ended December 31, 2011 2010 2009 Net cash provided by operating activities Expenditures for fixed assets, including internal-use software and website development Free cash flow 77 $25,663...

  • Page 84
    ... into an interest rate cap agreement with U.S. Bank with an effective date of October 1, 2011 limiting our exposure for one-month LIBOR at 0.5% for the term of the Financing Agreement. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required...

  • Page 85
    ...of our internal control over financial reporting as of December 31, 2011. In making our assessment of the effectiveness of internal control over financial reporting, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of...

  • Page 86
    ... Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Overstock.com, Inc.: We have audited Overstock.com, Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued...

  • Page 87
    ... years in the three-year period ended December 31, 2011, and our report dated March 2, 2012 expressed an unqualified opinion on those consolidated financial statements. /s/ KPMG LLP Salt Lake City, Utah March 2, 2012 (d) Changes in Internal Control Over Financial Reporting No change in the Company...

  • Page 88
    ... any charge upon request in writing addressed to Overstock.com. Attn: Investor Relations, 6350 South 3000 East, Salt Lake City, UT 84121. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to our definitive proxy statement for the 2012 annual meeting...

  • Page 89
    Table of Contents PART IV ITEM 15. 1. EXHIBITS, FINANCIAL STATEMENT SCHEDULES Financial Statements INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 2. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statement of ...

  • Page 90
    ... on December 7, 2004). Sublease 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...

  • Page 91
    ...of unwritten compensation arrangements with Directors. Subsidiaries of the Registrant. 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 Section 1350...

  • Page 92
    ... and Risk Management (Principal Financial Officer and Principal Accounting Officer) Stephen J. Chesnut /s/ STORMY D. SIMON Stormy D. Simon /s/ ALLISON H. ABRAHAM Director Allison H. Abraham /s/ BARCLAY F. CORBUS Director Barclay F. Corbus 86 Senior Vice President, Customer and Partner Care and...

  • Page 93
    Table of Contents Signature Title Date /s/ JOSEPH J. TABACCO, JR. Joseph J. Tabacco, Jr. /s/ SAMUEL A. MITCHELL Samuel A. Mitchell 87 Director March 2, 2012 Director March 2, 2012

  • Page 94
    Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statement of Stockholders' Equity (Deficit) and Comprehensive Income (Loss) Consolidated Statements of...

  • Page 95
    ... of the Public Company Accounting Oversight Board (United States), Overstock.com, Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway...

  • Page 96
    Table of Contents Overstock.com, Inc. Consolidated Balance Sheets (in thousands) December 31, 2011 December 31, 2010 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 97
    Table of Contents Overstock.com, Inc. Consolidated Statements of Operations (in thousands, except per share data) Year ended December 31 2011 2010 2009 Revenue, net Direct Fulfillment partner Total net revenue Cost of goods sold Direct(1) Fulfillment partner Total cost of goods sold Gross profit ...

  • Page 98
    ... Deficit Shares Amount Income (loss) Total 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 110 restricted stock Exercise of stock 2 options Purchase of...

  • Page 99
    ...Stock-based compensation to employees - and directors Common stock issued upon vesting of 318 restricted stock Purchase of - treasury stock Lapse of rescission rights of redeemable common stock... 2 $ 353,368 $ (261,765) 2,962 $(78,368) See accompanying notes to consolidated financial statements F-4

  • Page 100
    ... internal-use software and website development Collection of note receivable Net cash provided by (used in) investing activities Cash flows from financing activities: Payments on capital lease obligations Drawdowns on line of credit Payments on line of credit Capitalized financing costs Proceeds...

  • Page 101
    ..., including internal-use software and website development, costs financed through accounts payable and accrued liabilities Equipment acquired under finance obligations Equipment and software acquired under capital lease obligations Issuance of redeemable common stock Lapse of rescission rights of...

  • Page 102
    ...non-brand name and closeout merchandise, including bed-and-bath goods, home décor, kitchenware, furniture, watches and jewelry, apparel, electronics and computers, sporting goods, and designer accessories, among other products. We also sell hundreds of thousands of best seller and current run books...

  • Page 103
    ... Our financial instruments, including cash, cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. We are party to a Financing Agreement with U.S. Bank dated...

  • Page 104
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) The fair value of these financial instruments was determined using the following levels of inputs as of December 31, 2010 (in thousands): Fair Value Measurements at ...

  • Page 105
    ... of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) Accounts receivable Accounts receivable consist primarily of trade amounts due from customers and from uncleared credit card transactions at period end. Accounts receivable are...

  • Page 106
    ... categories on the consolidated statements of operations as follows (in thousands): Year ended December 31, 2011 2010 2009 Cost of goods sold-direct Technology General and administrative Total depreciation and amortization, including internal-use software and website development $ 714 $ 1,179...

  • Page 107
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) internally and acquired externally. Amortization of costs associated with internal-use software and website development was $8.0 million and $6.7 million for those ...

  • Page 108
    ... fulfillment partner revenue, including listing fees and commissions collected from products being listed and sold through the Auctions tab, which we removed from our site in July 2011, advertisement revenue derived from our real estate listing business, which we removed from our site in June 2011...

  • Page 109
    ... for the returned merchandise that we sold at auction was recorded on a gross basis. Revenue from the auctions business is included in the fulfillment partner segment. We operated an online site for listing real estate for sale as a part of our Website. In June 2011, we removed our online site for...

  • Page 110
    ...Statements (Continued) 2. ACCOUNTING POLICIES (Continued) active listings across the country. Revenue from the real estate listing business is included in the fulfillment partner segment, on a net basis. Prior to June 2011, we operated Eziba.com, a private sale website featuring home décor products...

  • Page 111
    ... wrong product. If the return is not a result of a product defect or a fulfillment error and the customer initiates a return of an unopened item within 30 days of delivery, for most products we refund the full cost of the merchandise minus the original shipping charge and actual return shipping fees...

  • Page 112
    ... of our returns data used in the estimation process. In early 2009, we implemented initiatives to reduce overall return rates in several of our product categories. In September 2009, we entered into a new master supplier agreement with our fulfillment partners that provided financial incentives for...

  • Page 113
    ..., Inc. Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) Cost of goods sold Cost of goods sold includes product costs, warehousing costs, outbound shipping costs, handling and fulfillment costs, customer service costs and credit card fees, and is recorded in...

  • Page 114
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) any other amount within the range, the minimum amount in the range is accrued. We expense legal fees as incurred. Restructuring Restructuring expenses are primarily ...

  • Page 115
    .... Notes 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 2011 2010 2009...

  • Page 116
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 2. ACCOUNTING POLICIES (Continued) In June 2011, the FASB issued an accounting pronouncement that provides new guidance on the presentation of comprehensive income (FASB ASC Topic 220) in financial ...

  • Page 117
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 4. COMPREHENSIVE INCOME (LOSS) Our comprehensive income (loss) is as follows (in thousands): Year ended December 31, 2011 2010 2009 Net income (loss) Reclassification adjustment included in net income (...

  • Page 118
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 8. FIXED ASSETS Fixed assets consist of the following (in thousands): December 31, 2011 2010 Computer hardware and software, including internal-use software and website development Furniture and equipment...

  • Page 119
    ... 31, 2011 2010 Payments owed or received prior to product delivery Club O membership fees and reward points Unredeemed gift cards Other Total deferred revenue 12. BORROWINGS U.S. Bank Financing Agreement $ $ 17,691 $ 5,193 3,738 1,356 27,978 $ 16,938 2,428 3,899 762 24,027 We are a party to...

  • Page 120
    ... or issue any new class of capital stock, (h) change our business objectives, purposes or operations in a manner which could reasonably be expected to have a material adverse effect, (i) change our fiscal year, (j) enter into transactions with affiliates, (k) sell assets except for the sale of...

  • Page 121
    ... outstanding, respectively. U.S. Bank Purchasing Card Agreement We have a commercial purchasing card (the "Purchasing Card") agreement with U.S. Bank. We use the Purchasing Card for business purpose purchasing and must pay it in full each month. At December 31, 2011, $3.4 million was outstanding...

  • Page 122
    ..., respectively. Interest on the Senior Notes was payable semi-annually on June 1 and December 1 of each year. The Senior Notes were scheduled to mature on December 1, 2011 and were unsecured and ranked equally in right of payment with all existing and future unsecured, unsubordinated debt and senior...

  • Page 123
    ... fee. Minimum future payments under naming rights agreement as of December 31, 2011, are as follows (in thousands): $ Payments due by period 2012 2013 2014 2015 2016 Legal Proceedings $ $ 1,236 1,273 1,311 1,351 1,391 6,562 From time to time, we are involved in litigation concerning consumer...

  • Page 124
    ..., 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., and later amended the complaint to...

  • Page 125
    ... 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 126
    ... disclose our returns policy to her and that we improperly imposed 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...

  • Page 127
    ...the suit. These district attorneys seek damages and an injunction under claims for violations of California consumer protection laws, alleging we made untrue or misleading statements concerning our pricing, price reductions, sources of products and shipping charges. The complaint asks for damages in...

  • Page 128
    ... 11, 2011, Droplets, Inc. filed suit against us and eight other defendants in the United States District Court in the Eastern District of Texas for infringement of a patent covering strings of programming code downloaded from a server to a client computer. We have answered the complaint. The case is...

  • Page 129
    ... notice covers documents related to the restatements and also to our billings to our partners in the fourth quarter of 2008 and related collections, and our accounting for and implementation of software relating to our accounting for customer refunds and credits, including offsets to partners, and...

  • Page 130
    ...") with 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...

  • Page 131
    ... newly issued common shares. The following is a summary of stock option activity (in thousands): 2011 2010 2009 Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price Outstanding- $ 18.09 721 $ 20.29 974 $ 21.27 beginning of year 496...

  • Page 132
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 17. STOCK-BASED AWARDS (Continued) The following is a summary of restricted stock unit activity (amounts in thousands, except per share data): 2011 2010 2009 Weighted Average Weighted Average Weighted ...

  • Page 133
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 18. EMPLOYEE RETIREMENT PLAN (Continued) recorded in our consolidated balance sheets because they are subject to the claims of our creditors. The corresponding deferred compensation liability represents the...

  • Page 134
    ... income tax rate of 35% to loss before income taxes for the following reasons (in thousands): Year ended December 31, 2011 2010 2009 U.S. federal income tax provision (benefit) at statutory rate State income tax expense, net of federal benefit Stock based compensation expense Other Change in...

  • Page 135
    ...an entity owned by our Chairman and Chief Executive Officer) and certain affiliated entities make travel arrangements for our executives and pay the travel related expenses incurred by our executives on company business. During the years ended December 31, 2011, 2010 and 2009 we reimbursed Haverford...

  • Page 136
    ...and fulfillment costs, credit card fees and customer service costs. The fulfillment partner segment includes revenues, direct costs and cost allocations associated with sales of merchandise of third parties over our Website, fulfilled from warehouses maintained by our fulfillment partners. Costs for...

  • Page 137
    Table of Contents Overstock.com, Inc. Notes to Consolidated Financial Statements (Continued) 22. BUSINESS SEGMENTS (Continued) Assets have not been allocated between the segments for our internal management purposes and, as such, they are not presented here. For the years ended December 31, 2011, ...

  • Page 138
    ... 31, 2011 2011 2011 (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 139
    ... 2010 2010 (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 General and...

  • Page 140
    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, 2011 Deferred tax valuation allowance Allowance for sales returns Allowance for doubtful accounts Year...

  • Page 141

  • Page 142
    ... Unwritten Compensation Arrangements Applicable to Non-Employee Directors of Overstock.com, Inc. During 2011 the Company paid its non-employee directors $60,000 annually, at the rate of $15,000 per quarter. During 2012 the Company will pay its non-employee directors $50,000 annually, at the rate of...

  • Page 143
    QuickLinks Exhibit 10.27 Summary of Unwritten Compensation Arrangements Applicable to Non-Employee Directors of Overstock.com, Inc.

  • Page 144
    ... SUBSIDIARIES OF THE REGISTRANT Name Jurisdiction of Formation Trade Names Overstock.com Real Estate LLC Overstock.com Services, Inc. Market Partner Holdings, Inc. Market Partner Operations, Inc. Market Partner SR, Inc. Utah Utah Utah Utah Utah Overstock.com Real Estate Overstock.com Services

  • Page 145
    QuickLinks Exhibit 21 SUBSIDIARIES OF THE REGISTRANT

  • Page 146
    ...December 31, 2011, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2011, which reports appear in the December 31, 2011 annual report on Form 10-K of Overstock.com, Inc. /s/ KPMG LLP Salt Lake City, Utah March 2, 2012

  • Page 147
    QuickLinks Exhibit 23.1 Consent of Independent Registered Public Accounting Firm

  • Page 148
    ... registrant's ability to record, process, summarize 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 2, 2012 /s/ PATRICK...

  • Page 149
    QuickLinks Exhibit 31.1 CERTIFICATION

  • Page 150
    ... registrant's ability to record, process, summarize 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 2, 2012 /s/ STEPHEN...

  • Page 151
    QuickLinks Exhibit 31.2 CERTIFICATION

  • Page 152
    ...as 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: March 2, 2012 /s/ PATRICK M. BYRNE Name: Title: Patrick M. Byrne Chief Executive Officer (principal executive officer)

  • Page 153
    QuickLinks EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

  • Page 154
    ... Report of Overstock.com, Inc. on Form 10-K for the year ended December 31, 2011 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...

  • Page 155
    QuickLinks EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002