Overstock.com 2014 Annual Report Download - page 86

Table of Contents
During 2014, we acquired a 24.9% interest in a registered broker-dealer as part of our efforts to develop and license software to trade cryptosecurities
using the Bitcoin network and its protocols. The purchase price for the investment was $250,000 and is accounted for as an equity method investment which
is included in Other long-term assets in our consolidated balance sheets. The difference between the carrying value of this investment and the amount of
underlying equity in net assets of the investee is not significant. Our proportionate share of the net income or loss of our equity method investee for the year
ended December 31, 2014 is not significant. When we record our proportionate share of net income, it increases income (or decreases loss) in our
consolidated statements of income and our carrying value in that investment. Conversely, when we record our proportionate share of a net loss, it decreases
income (or increases loss) in our consolidated statements of income and our carrying value in that investment. As part of the agreement with the registered
broker-dealer, we formed an entity that is 75.1% owned by us and 24.9% owned by the registered broker-dealer. This entity is included in our consolidated
financial statements. Intercompany transactions with the entity have been eliminated and the remaining contributions and gains or losses realized by the
entity that are attributable to noncontrolling interests have been disclosed in our consolidated financial statements.

We account for lease agreements as either operating or capital leases depending on certain defined criteria. In certain of our lease agreements, we
receive rent holidays and other incentives. We recognize lease costs on a straight-line basis without regard to deferred payment terms, such as rent holidays,
that defer the commencement date of required payments. Additionally, tenant improvement allowances are amortized as a reduction in rent expense over the
term of the lease. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the life of the lease, without
assuming renewal features, if any, are exercised.

We account for treasury stock under the cost method and include treasury stock as a component of stockholders’ equity.

Our investments in precious metals were $10.9 million and $9.7 million at December 31, 2014 and 2013, respectively. Our precious metals consisted
of $6.3 million in gold and $4.6 million in silver at December 31, 2014 and $4.0 million in gold and $5.7 million in silver at December 31, 2013. We store
our precious metals at an off-site secure facility. Because these assets consist of actual precious metals, rather than financial instruments, we account for them
as a cost method investment initially recorded at cost (including transaction fees) and then adjusted to the lower of cost or market based on an average unit
cost. On an interim basis, we recognize decreases in the value of these assets caused by market declines. Subsequent increases in the value of these assets
through market price recoveries during the same fiscal year are recognized in the later interim period, but may not exceed the total previously recognized
decreases in value during the same year. Gains or losses resulting from changes in the value of our precious metal assets are recorded in Other income
(expense), net in our consolidated statements of income. Losses on investments in precious metals were $1.3 million, $1.5 million, and $0 for the years ended
December 31, 2014, 2013 and 2012, respectively.

Goodwill represents the excess of the purchase price paid over the fair value of the tangible net assets acquired in business combinations.
Goodwill is not amortized but is tested for impairment at least annually. When evaluating whether goodwill is impaired, we make a qualitative
assessment to determine if it is more likely than not that its fair value is less than its carrying amount. If the qualitative assessment determines that it is more
likely than not that its fair value is less than its carrying amount, we compare the fair value of the reporting unit to which the goodwill is assigned to its
carrying amount. If the carrying amount exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss, if any, is
calculated by comparing the implied fair value of the goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of the
reporting unit is allocated to the other assets and liabilities within the reporting unit based on estimated fair value. The excess of the fair value of a reporting
unit over the amount allocated to its other assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized when the carrying
amount of goodwill exceeds its implied fair value.
85